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Journal Article
Underestimating advertising: innovation and unpriced entertainment
Leonard Nakamura states that despite consumers? lack of respect for advertising, it nonetheless plays a significant role in the economy. For one thing, it helps consumers find out about new products, and new products have been rising in economic importance. It also plays a role in subsidizing broadcast entertainment and news programs. Ultimately, Nakamura shows that although advertising contributes to consumer welfare, its contribution is missing from our measures of output.
Working Paper
Advertising, intangible assets, and unpriced entertainment
This paper addresses two aspects of advertising: its role in supporting entertainment and news, and its role as an investment. The author argues that in both roles advertising?s contribution to output is being undermeasured in the national income accounts. In some cases one unit of nominal advertising input should be counted as two units of real output. In rough orders of magnitude, he argues that it is plausible that two-thirds of advertising expenditure represents unmeasured contributions to output, and the level of real GDP should be increased accordingly.
Journal Article
When you can't go see somebody: advertising to business
Working Paper
Valuing “free” media across countries in GDP
?Free? consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth since 2000 is too low because it excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013). Similar large effects on consumers occurred with the arrival of free radio and television entertainment. We provide an experimental methodology that uses previously established GDP measurement procedures to value advertising-supported entertainment around the world. The ...
Working Paper
Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices
We examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice of home equity debt contracts. Consistent with the theoretical predictions, we find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining consumers home equity debt choice. Furthermore, we also find that the intended use of debt proceeds significantly impacts consumer choice. However, when we study a subset of consumers who received a direct mail solicitation for a particular debt contract ...
Working Paper
Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions
We derive five hypotheses regarding market competition, price, and advertising from a theoretical model of a profit maximizing depository institution, and test these conjectures in a simultaneous system of deposit interest rates and advertising expenditures for a data panel of 1,867 thrift institutions that offer 13 different deposit products in 666 local markets in the U.S. between 1994 and 2000. We find some support for each of our hypotheses ? branding, information, Dorfman-Steiner, structure-advertising, and structure-price ? with the strength of the results often depending on the ...
Briefing
Networks, Innovation and Productivity: A Conference Recap
How do employment targets affect firm dynamics? What is the relationship between inventor migration, and local productivity and knowledge spillovers? How are surplus gains from inventions distributed? These were among the questions addressed by economists during a recent Richmond Fed research conference.Economists from the Richmond Fed, research universities and other institutions met in Richmond for a conference in May. Researchers presented papers on a variety of topics, including digital advertising, R&D allocation, production networks, and knowledge creation and diffusion.
Working Paper
Valuing \"Free\" Media in GDP: An Experimental Approach
?Free? consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth is badly underestimated because GDP excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013; Aeppel 2015). This paper ntroduces an experimental GDP methodology that includes advertising-supported media in both final output and business inputs. For example, Google Maps would be counted as final output when it is used by a consumer to plan vacation driving ...
Working Paper
Advertising and Risk Selection in Health Insurance Markets
We study impacts of advertising as a channel of risk selection in Medicare Advantage. We show evidence that both mass and direct mail advertising are targeted to achieve risk selection. We develop and estimate an equilibrium model of Medicare Advantage with advertising to understand its equilibrium impacts. We find that advertising attracts the healthy more than the unhealthy. Moreover, shutting down advertising increases premiums by up to 40% for insurers that advertised by worsening their risk pools, which further reduces the demand of the unhealthy. We argue that risk selection may make ...
Working Paper
Consumer Mistakes and Advertising : The Case of Mortgage Refinancing
Does advertising help consumers to find the products they need or push them to buy products they don't need? In this paper, we study the effects of advertising on consumer mistakes and quantify the resulting effect on consumer welfare in the market for mortgage refinancing. Mortgage borrowers frequently make costly refinancing mistakes by either refinancing when they should wait, or by waiting when they should refinance. We assemble a novel data set that combines a borrower's exposure to direct mail refinance advertising and their subsequent refinancing decisions. Even though on average ...