Austan Goolsbee Jonathan Guryan

Working Paper 9090

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2002

We wish to thank Joshua Angrist, David Autor, Thomas Hubbard, Steven Levitt, Kevin Murphy and workshop participants at the University of Chicago, the University of Virginia and the ASSA meetings for helpful comments, and Catriona Ayer, Monique Nelson, Duncan Chaplin and the Urban Institute for providing data, and Tina Lam and Clarissa Yeap for research assistance. Goolsbee thanks the National Science Foundation (SES 9984567), the Alfred Sloan Foundation and the American Bar Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

© 2002 by Austan Goolsbee and Jonathan Guryan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

The Impact of Internet Subsidies in Public Schools Austan Goolsbee and Jonathan Guryan NBER Working Paper No. 9090 August 2002 JEL No. I2, H2 ABSTRACT In an effort to alleviate the perceived growth of a digital divide, the U.S. government enacted a major subsidy for Internet and communications investment in schools starting in 1998. The program subsidized spending by 20-90 percent, depending on school characteristics. Using new data on school technology usage in every school in California from 1996 to 2000 as well as application data from the E-Rate program, this paper shows that the subsidy did succeed in significantly increasing Internet investment. The implied first-dollar price elasticity of demand for Internet investment is between –0.9 and –2.2 and the greatest sensitivity shows up among urban schools and schools with large black...