The economic contribution of Ordnance Survey

OXERA (Oxford Ecomomic Research Associates Ltd) Final Report (public version)

4. Methodology

The objective of this study is to provide an estimate of the current economic importance of OS. In time, OS may wish to repeat this study and assess the change in importance. If future studies are to be consistent with this one, the methodology used must be transparent. This section provides a description of the alternative methodologies considered and of the final methodology used.

4.1 Willingness to pay

Central to the approach adopted in this report is the assumption that sales figures will almost certainly underestimate the overall value of OS. There are two reasons for this:

the overall benefits which users gain from their use of OS information will exceed the price they pay for its products;

other benefits are not included in any economic calculus-e.g. the broader gains to society from environmental improvements brought about by the better use of OS products, or the reductions in mortality produced as a result of improved response times by the emergency services.

The economic value of OS can, in principle, be measured by overall willingness to pay (WTP)-i.e. what each consumer would have paid, had the seller been able to discriminate between customers and to extract the maximum feasible charge. In the case of public goods, such as OS's basic data collection, WTP should be calculated as a total across all users. This should allow consideration of whether the common investment is worth making in the first place, and to what scale.

The best way to assess WTP is to ask people how much they would contribute towards financing OS's basic activities. The NIMSA covers the public interest in the provision of this public good, but there is no reason why overall WTP should equal the cost-indeed, it would be expected that the total value attached to OS's services would exceed the cost of collection. However, a full WTP study, based on surveys, is time-consuming and difficult to accomplish without bias. Such an exercise has not been attempted here.

An alternative approach to estimating WTP is to re-examine the options open to users if OS-based services were not available. Specifically, this would entail looking at the costs which buyers of OS services would have to bear if they could not buy OS products (e.g. the additional surveying costs which engineers would have to bear if they could not use OS maps). This technique can work well at the margin (identifying the additional costs that would be carried if OS had not expanded or improved its services), but it does not work as well infra-marginally. It would be possible to pose the question of what people would do if there were no OS services, but it would be hard to obtain a sensible answer since it would not be plausible to forget about 200 years of maps and map-making. Our analysis of a sample of OS customers demonstrated that interviewees found it impossible to assess how much it would cost them to do without OS products and services.

4.2 The value-added approach

Given the scale of this project, and the limited information concerning the impact of OS on its customers, a high-level value-added approach has been used to estimate the economic contribution of OS. In each sector, value-added is equal to the value of output produced less the value of goods bought in to produce that output. For the economy as a whole, GVA is the main component of GDP at market prices (consumer taxes being the other).

The methodology is based on the assumption that OS contributes to the economy in seven different ways (as outlined in the table below). Where possible, a monetary estimate of the economic importance of OS activities has been provided under each of these headings. However, the qualitative conclusions about the dependence of particular parts of the economy on OS, and the social value of OS, are probably of more importance.

Table 4.1: OS's contributions to the Great Britain economy and OXERA's measures of each

The base year for the analysis is 1996; this is the most recent year for which ONS data on value-added by sector is available. More recent information on the direct value of OS and on its contribution to distributors and System Suppliers is available, and has been taken into account in our calculations and projections. However, as much of the core financial information is commercially confidential, the breakdown of information is not always provided in this public report.

Given our preferred approach to estimating the economic value of OS (based on WTP), this value-added estimate is an indirect, and certainly theoretically inferior, measure. However, it is consistent with both the basic national accounts data and OXERA's own interviews. It is therefore the best available measure, although, as emphasised above, it should be considered alongside the qualitative analysis of the economic role of OS in the economy.

4.3 Assessing the benefits of OS to other industries and services

The products and services provided by OS, not least of which is raw geographic data, are inputs into the production processes of a wide range of other goods and services in the Great Britain economy. All information, including GI, is a primary factor of production, alongside labour and capital. Given the right skills and computing facilities, information can be converted to knowledge, which is the basis of human capital.

In an attempt to show something of the economic value of OS products and services as an input to the production of other goods and services, the report focuses on the ten key OS business segments. The total figures provided at the end of Section 6 must therefore be viewed as an underestimate, given that OS is also a valuable input used in sectors omitted from the analysis.

Three steps have been taken to assess the contribution of OS-related activities to each of the segments:

determine the GVA²¹ of the sector; estimate the proportion of production that is dependent on OS data and services; use this proportion to estimate the value-added which can be assumed to be OS-dependent.

The information on GVA for each sector has been determined using data from the ONS²², except in the case of central government (see section 6.2).

The analysis is based on information determined from interviews with a sample of customers within these sectors. The views expressed may not necessarily be shared by OS. All those interviewed are existing users of OS products and services and, as such, cannot be assumed to be statistically representative of all potential GI users. However, a wide variety of key user groups have been included in the analysis. The qualitative analysis is used to provide an indication of how dependent a particular sector's production is on OS products and services. For each sector, the degree of dependence on OS as a source of inputs to the production process is determined by placing it in one of the following bands.

Given the broad nature of the sectoral analysis, and the limited number of interviews, it is clear that the assumptions about a sector's dependence on OS are very approximate. They do, however, provide a guide to the contribution of OS to production in these sectors, and hence to its contribution to the national economy. In order to place the use of OS-related products and services in context, consideration is also given to the availability of similar products and services from other sources and to the cost of using out-of-date OS information.

The value of any given GI data depends on how current the information is and on its useful life. Useful life varies by type of data and by the use to which it is being put. In the analysis of the economic value of OS, the focus is on the value of currently available information. Older information, and products and services based on out-of-date information, are viewed as substitutes for existing OS products and services.

4.4 Efficiency and effectiveness

In addition to the assessment of the monetary value arising from OS data, the study briefly considers the efficiency and effectiveness of the organisation's production process. Both efficiency and effectiveness directly affect the economic benefit of an activity.

4.5 Conclusion

There seems little doubt that, without quality maps, Great Britain's productive potential would be reduced; it would take more resources to produce the same output. However, it is difficult to determine to what extent. It will not be possible to use our figures to say that GDP would be so many million pounds lower were it not for OS. The analysis will demonstrate, however, the monetary contribution of OS to the national economy and will enable statements such as 'Sectors which contribute x proportion of output from Great Britain make significant use of OS products and services.' Similar claims can, of course be made on behalf of other essential inputs (e.g. in one sense, just about the whole of the economy is dependent on the services of the electricity industry). However, this does not mean that a demonstration of the underlying importance of OS is not useful and illuminating.

21 GVA at basic prices is equal to gross operating surplus plus compensation of employees, plus taxes less subsidies.
22 ONS (1998), UK Input-Output Supply and Use Balances, 1992-96, Table 3, Demand and Products: the 'combined use' matrix, The Stationery Office.