Assessing the It Productivity Paradox: Using the Consumer Price Index as an Indicator of Consumer Benefit

While some researchers report significant benefits resulting from investments in technology, others report no measurable impact whatsoever. Economists suggest this inconclusiveness may be a result of inadequacy of the metrics. In particular, conflicting findings are often related to the inherent difficulty in defining and measuring value. These debates are riddled with theoretical and philosophical ambiguities and contradictions. One unique approach is to assess and investigate value from the consumers’ perspective. The idea is that the benefits of technology investments are often passed on to consumers through quality improvements, enhanced product variety, and lower prices. Consumer surplus is measured as the difference between what consumers are willing to pay (the reserve price) and the market-based price based on the aggregate demand. Brynjolfsson applied several sophisticated econometric indicators to assess the consumer surplus related to IT and estimates that consumer surplus is $50 to $70 billion a year. This paper strives to set aside the arguments regarding which approach is best and the philosophical and methodological difficulties related to value. We do this by focusing exclusively on the price component of consumer benefit. Specifically, we assess the change in consumer price index metric for various products and services between 1990 and 2000. Setting aside all concepts of value and not accounting for the benefits associated with quality improvements, we found that consumers are paying less for technology-oriented products and services and they are paying more for non-technology-oriented products and services.