Abstract
We estimate the welfare gain from innovations in the LCD TVs that prevailed during the period 2005–2007 in Japan, via consumer surplus that we measure with the aid of discrete choice methods, using market data obtained from an internet price comparison service (Kakaku.com). Further, by the measured implicit values of attributes, we evaluate in monetary terms, the qualitative transition embedded in the attributes through the iso-consumer surplus planes. We thereby disaggregate the welfare gain into the qualitative and the budgetary components, which we call the quality gain, and the budget gain, respectively. The estimates show, along with the evolved process of innovation, that the quality gain was in the order of 381 KJPY, while the budget gain was 94 KJPY negative, which gives about 287 KJPY of overall welfare gain per consumer, during the period.
Highlights
Measurement of innovation has been gaining interest, as innovation is an important source of human welfare and economic growth, while it is diffusedS
The utility-constant valuation of attributes by way of discrete choice methods, allows us to project all qualitative characteristics along with prices of goods onto the iso-consumer surplus plane, so that the welfare gain from innovation can we assess in terms of compensated variation, and can we separate it into the innovative components that we consider
Innovation, in terms of price reduction while holding the quality constant, may be measured by way of hedonic function estimation with time dummy variables, this measure includes both kinds of innovations
Summary
Measurement of innovation has been gaining interest, as innovation is an important source of human welfare and economic growth, while it is diffused. For the sake of the subsequent discussion, we rely on the following definition of innovation: The design, invention, development and/or implementation of new or altered products, services, process, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm It is rather obvious from this perspective that while innovation is a change in the performance of the supply side of the economy, the value induced is well measured from the demand side. The utility-constant valuation of attributes by way of discrete choice methods, allows us to project all qualitative characteristics along with prices of goods onto the iso-consumer surplus plane, so that the welfare gain from innovation can we assess in terms of compensated variation, and can we separate it into the innovative components that we consider..
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