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OVERVIEW

This papers develops and applies a new method for estimating consumer benefits from advanced technology. The new method takes into account changes in the quality of service provided by the new technology. We apply the method to evaluate two ATP-funded innovations in data storage technology.

  • One innovation, undertaken by LOTS Technology, Inc., is an optical tape read/write technology representing a dramatic increase in data storage capacity.

  • The second innovation, carried out by Imation Corporation, is to develop underlying technology for linear scanning of magnetic tape that, at a fraction of the cost, can match or exceed the performance and capacity of a helical-scan system, a competing technology led by offshore competitors.

Both technologies promise dramatic price/performance improvements compared to existing tape drives. Applying the new evaluation method, we estimate the expected benefits to consumers from the optical tape technology to exceed $1 billion, and from the linear scanning technology, $2 billion, both taken over a five-year period, and conservatively estimated. This study focuses on consumer benefits from early commercialization of the technologies, and ignores benefits accruing to the innovator, or to other manufacturers via knowledge spillovers, as well as benefits from second-generation products.

DEVELOPING A MODEL FOR ESTIMATING BENEFITS TO CONSUMERS

In any R&D program, a key challenge for public and private managers alike is to assess what the outcomes and longer run impacts will be. Government programs, such as the ATP, are particularly concerned about how consumers will benefit from the innovations being developed.

Traditionally, forecasts of how consumers will benefit from an innovation have been difficult, particularly when the innovation is a high-tech link in a chain that ends with a benefit to the consumer. The quality of service is not readily observable and is difficult to measure quantitatively.

Work by Stanford's Timothy Bresnahan 1 made it more feasible to estimate consumer benefits from quality of service improvements. He developed a cost-of-living index that, under certain general assumptions, makes it possible to compare observed price and performance for an innovated product against hypothetical, best-available price and performance had the technical advance not occurred. Bresnahan's method was aimed at retrospective evaluation; that is, for

1 Timothy Bresnahan, “Measuring the Spillovers from Technical Advance: Mainframe Computers in Financial Services,” American Economic Review, 76(4):742-755, 1986.



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