THE CONTRIBUTION OF INFORMATION TECHNOLOGY TO CONSUMER WELFARE

Over the past two decades, American businesses have invested heavily i n information technology (IT) hardware. Managers often buy IT to enhan ce customer value in ways that are poorly measured by conventional out put statistics. Furthermore, because of competition, firms may be unab le to capture the full benefits of the value they create. This undermi nes researchers' attempts to determine IT value by estimating its cont ribution to industry productivity or to company profits and revenues. An alternative approach estimates the consumers' surplus from IT inves tments by integrating the area under the demand curve for IT. This met hodology does not directly address the question of whether managers an d consumers are purchasing the optimal quantity of II, but rather assu mes their revealed willingness-to-pay for IT accurately reflects their valuations. Using data from the U.S. Bureau of Economic Analysis, we estimate four measures of consumers' surplus, including Marshallian su rplus, Exact surplus based on compensated (Hicksian) demand curves, a ''nonparametric'' estimate, and a value based on the theory of index n umbers. Interestingly, all four estimates indicate that in our base ye ar of 1987, IT spending generated approximately $50 billion to $70 bil lion in net value in the United States and increased economic growth b y about 0.3% per year. According to our estimates, which are likely to be conservative, IT investments generate approximately three times th eir cost in value for consumers.