Friday, August 26, 2005

An Economic Analysis of Economics Blogs: Part II

Bloggers are not paid for the quantity or quality of their entries. Usually, suppliers produce zero when offered a price of zero. Why is the supply curve for blogs different than the supply curve for hotdogs?

One explanation is complementarities. Camera companies may give away free film to sell more cameras. Bloggers may give away their thoughts for free in return for two expected payments. First, we may view this as good advertising for our published academic research. If I impress you with a good blog, you might use Econlit or google scholar to track down some of my formal work. Second, some bloggers may be using their blog entries to signal to journalists that they could offer a good quote on a particular policy issue. In this sense, blogging is a type of advertising that may help reporters cheaply locate the “spice” they are looking for.

Another obvious reason for why bloggers blog and may even invest a fair bit of time at this activity is status. What can a middle aged academic who is not at a top 20 research institution do to raise his visibility? Academic economists rarely go to the library and actually read the American Economic Review or other leading journals. Blogging is a relatively cheap way to reach others. Blogs like all ideas are public goods. The Internet offers a zero cost distribution network to billions of people. Somebody out there may even consider some us to be clever and insightful.

How much do people gain from reading economics blogs? Since the price equals zero for accessing everyone’s blogs, we have no way to sketch out a demand curve and measure consumer surplus. In recent years economists such as Hausman have used statistical methods to measure the consumer surplus from new goods such as Cell Phones and HoneyNut Cereals. But putting a dollar value on the benefits of economics blogs would be harder problem to solve.

Blogs and the Grand Canyon are both “non-market” goods. Perhaps surprisingly, it is easier to measure the value of the Grand Canyon because we can use Travel Cost methods. Intuitively, if I see you drive your family from Chicago to the Grand Canyon using $700 in hotel bills and $400 in gas and time spent commuting, then you must value visiting the Canyon by at least $1100. Otherwise, you wouldn’t have chosen to make this trip. If we collected data on how much time different readers spent reading blogs and knew each reader’s value of time (hourly wage), then this information could be used to generate a lower bound on the value of blogs. We need to open up some markets here and see whether people vote their wallets. David Warsh may offer one market test.

David Warsh of Economic Principals is thinking of having a two tiered pricing system where blog readers who have sent him $50 per year gain early access to his weekly columns. It will interest me how many people take him up on this offer. Some leading economics blogs ask readers for contributions. Are economics blog readers free riders? Somebody has to act in accord with economic theory!

5 comments :

John Whitehead said...

Matthew,

The data to estimate the cost/lower bound benefit of visiting your blog is in your site meter data. Assume the average wage rate, multiply by time spent at blog, multiply by number of visits and bingo, an estimate.

John Whitehead

ALJ said...

you might also consider technorati's tag system to gauge the number of economics blogs and hence the surplus out there. there's actually a niche of bloggers who make money going through google's keywords, finding the pricest ones, and then determing how many already write blogs on the subject. hence they start sources for high revenue subjects that aren't well covered. the best example being the spurt of blogs around abesto becuase of the 5k reference fee lawyers got for refering someone who had been exposed to abesto to the lawyers behind the class action suit.

peace,
a

elhuevon said...

Prof. Kahn,

One of the big benefits from my end is the ability to interact with econ professors on a real-time basis. I found your blog through Prof. Samwick's. His blog was of interest b/c I already appreciate his take on public finance issues.

Lately I've done all my blog reading while at work. Hence, the cost to me is mostly fixed (I can't leave my desk), but the cost to my employer is around $20/hr (I'm a 2005 college graduate).

I suspect that the status of having a popular blog is very important to academic economists. I would bet good money that many economists at top 20 research universities and beyond are feeling jealous of Steve Levitt's increased visibility AND income stream. Popular blogs could be important justification for larger book advances.

Finally, there is a residual benefit for each blogger's institution. As a prospective grad student thinking about where to apply, George Mason would not have been on my radar screen, but the guys at Marginal Revolution are definitely peaking my interest.

I like your list, but I find Becker/Posner too cramped by ideological fervor. I read regularly:
Brad DeLong
Setser/Roubini Macro
Marginal Revolution
Vox Baby
And the Private Sector Development Blog

Five of the six are academic economists and the last are World Bank Group authors. Keep up the good work and I'll add you to my employer's payroll!

Dave said...

'Assume the average wage rate...'
Presumably you need to break down the visits by country or even by city to do this correctly. Otherwise if you have lots of readers from China or Namibia or Lithuania, or even here in Australia, you're going to be well out. Let's not be too US-centric, hard as it is to resist.

Blog Shares is an attempt to provide a stock market for blogs. 'Blogs are valued by linking to them and add value to other blogs by linking to them.' But the price is set by the market. I know little more about it than this, though I assume there's some sort of dividend simulation.

captain mike said...

Marginal Revolution proved to be a great way to advertise Tyler Cowen's works at least to me.

Because i enjoyed the blog, i bought and read his book "Creative Destruction."