Usually we use purchase-parity adjustments when we look at the value of money, so there might be a subtle circular reasoning problem here. One issue for example is that there is no value in innovation (say, by designing a cheaper transportation service/product, people could end up paying less for the service so the revenue may decrease [while the profits could get higher]).
Another issue is that I don’t think this could take into account counterfactual impact.
Didn’t read through the whole thing yet, sorry if I missed how you addressed this issues! I love the idea of trying to find simpler ways of estimating impact!
Hm, not sure. If there is an opportunity for innovation, I’d expect either the incumbent to pursue this to expand the addressable market (and thereby make more revenue / have more impact) or/and a competitor to innvoate, thereby reducing the price and capturing market share / prevent the incumbent from increasing profits (and increasing revenue / imapct for the competitor).
On second reading I assume you are referring to the issue that when a product gets cheaper through innvoation it might look like the product would be less impactful because it now gets less share of the total WELLBYs of the customer. I guess, though, what would happen at the same time is that overall life satisfaction of the customer will go slightly up as they now have more disposable income (just saved some money from spending less on that product), and that increased life satisfaction would be distributed across all purchases, including the one that just got cheaper. On a micro level those won’t perfectly balance of course but on the coarsness level of this analysis I think we’d be fine—see the section on first dollar vs last dollar spent in Appendix 1.
But I’m not an economist or anything like that by training so very curious about your further thoughts! I very likely missed things.
I addressed the counterfactual impact a bit in Appendix 1 in the section on absolute vs relative impact.
Usually we use purchase-parity adjustments when we look at the value of money, so there might be a subtle circular reasoning problem here. One issue for example is that there is no value in innovation (say, by designing a cheaper transportation service/product, people could end up paying less for the service so the revenue may decrease [while the profits could get higher]).
Another issue is that I don’t think this could take into account counterfactual impact.
Didn’t read through the whole thing yet, sorry if I missed how you addressed this issues! I love the idea of trying to find simpler ways of estimating impact!
Hm, not sure. If there is an opportunity for innovation, I’d expect either the incumbent to pursue this to expand the addressable market (and thereby make more revenue / have more impact) or/and a competitor to innvoate, thereby reducing the price and capturing market share / prevent the incumbent from increasing profits (and increasing revenue / imapct for the competitor).
On second reading I assume you are referring to the issue that when a product gets cheaper through innvoation it might look like the product would be less impactful because it now gets less share of the total WELLBYs of the customer. I guess, though, what would happen at the same time is that overall life satisfaction of the customer will go slightly up as they now have more disposable income (just saved some money from spending less on that product), and that increased life satisfaction would be distributed across all purchases, including the one that just got cheaper. On a micro level those won’t perfectly balance of course but on the coarsness level of this analysis I think we’d be fine—see the section on first dollar vs last dollar spent in Appendix 1.
But I’m not an economist or anything like that by training so very curious about your further thoughts! I very likely missed things.
I addressed the counterfactual impact a bit in Appendix 1 in the section on absolute vs relative impact.