"Information Technology and Returns to Scale"
at 12:15pm on Tuesday, May 8, 2018 in (051 Buchanan) Volanakis
- TUCK
Lunch will be served at noon.
If you will be attending the Lunch Seminar please RSVP to Doreen Aher at TUCK so she can order the appropriate amount of food.
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Please sign up for a meeting or dinner at:
https://docs.google.com/spreadsheets/d/160ODjkFBoAsvl_XbUJb94Q9yr-zjmhdQIXGYqHaxH4c/edit?usp=sharing
ABSTRACT:
The
rise of Information Technology (IT) is often linked to recent secular macroeconomic trends such as the fall in the labor share and startup formation, and the rise in industry concentration and firm-level dispersion. This paper argues for a novel causal mechanism
whereby the fall in the price of IT capital may reallocate market shares toward larger firms and thus contribute to these trends. It relies on newly constructed measures of software and hardware capital in the universe of French firms and documents a strong
correlation between firm size and the intensity of demand for IT. Using exogenous destination-level demand shocks in the sample of exporting firms, the paper then shows that firm scale causally impacts the IT demand intensity. A simple heterogeneous-firm model
of industry equilibrium can rationalize these empirical patterns, if firm-level production function is nonhomothetic and the relative marginal product of IT rises with output. Given a large fall in the price of IT inputs, the calibrated model can generate
a sizable rise in industry concentration, and a fall in aggregate labor share and entry.