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Abstract:
We explore the effect of computerization on productivity and output growth using data from 527 large US firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using one year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to five times greater over long periods (using five to seven year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s.

Abstract:
The Internet provides consumers with unprecedented amounts of product information. Although the competitive implications of better-informed consumers have been extensively studied, little attention has been paid to the impact of information on overall consumer demand. In this paper, we estimate the differences in demand for music CDs and cassettes between consumers who access online product information and those who do not. Our empirical model accounts for the self-selection effect that consumers who have greater demand for a product are more likely to search for information on that product. After controlling for self-selection and observable consumer characteristics, we show that consumers who access online product information have a 17% greater demand for CDs and cassettes. Using our model estimates, we calculate the benefits of a new marketing strategy in which product information is provided only to those consumers who exhibit the highest marginal demand response to product information. We show that this strategy significantly outperforms the traditional strategy of targeting consumers who had high demand in the past.

Product information, electronic commerce, consumer demand, target marketing

Abstract:
Despite significant public, media, and academic interest in offshoring, there has been very little data available through which to assess how offshoring has affected US-based information technology workers. In this study, we use data from two new, nationally representative surveys to examine how offshoring has already affected the US based IT workforce, and to test the hypothesis that offshoring is making interpersonal skills more valuable for US-based IT workers.

Our survey results show that 40% of high-technology firms offshore work, and about 30% of all firms that offshore send IT work overseas. Among the IT workers surveyed, about 8% report ever having experienced offshoring-related job displacement, double the average offshoring-related displacement rate across all other worker types, but still implying an annual offshoring-related displacement rate of only about 1% per year.

We also provide evidence that workers in jobs that require face-to-face contact or physical presence are at smaller risk of offshoring-related job displacement, implying that interpersonal skills are becoming relatively more valuable among IT workers. A one standard deviation increase in our skills measure increases the likelihood of having one's job offshored by about 25% above the base rate. Our findings imply that IT workers in functions that involve cross-divisional communication or hands-on support are less likely to be affected by offshoring.

offshoring, IT workers, turnover, skills, globalization

Abstract:
Focusing on proving or disproving Transaction Cost Economics has led to a relative neglect of some key drivers of vertical scope, such as differences in productive capabilities (as opposed to capabilities of governance). We consider how productive capability differences can shape vertical scope through gains from trade. Using highly detailed data from the mortgage banking industry, we find productive capabilities to be a key determinant of the make-vs.-buy decision. Our analysis also suggests firms' attempts to leverage a comparative advantage can also lead to the use of mixed governance modes (both "make" and "buy" in a particular part of the value chain). We conclude that the distribution of productive capabilities along the value chain, catalyzed by transaction costs, ultimately drives vertical scope.

Productive Capabilities, Gains from Trade, Transaction Costs, Vertical Integration

Abstract:
We report productivity estimates from a new panel data set describing IT personnel counts for over 80,000 firm-years from 1987 to 2006. We first benchmark the performance of our new measures against existing firm-level capital stock measures and other firm-level IT measures then report estimates from several models that take advantage of the large size of our panel to address existing gaps in our understanding of IT productivity. First, we update the IT productivity estimates through 2006. Because of the length of our panel, our estimates are robust to GMM-based estimators that account for the endogeneity of information technology spending. These estimators produce coefficient estimates that are about 10% lower than unadjusted estimates. The output elasticity of IT personnel, after accounting for the endogeneity of IT spending, is between 0.07 and 0.08, with an implied marginal product indicating that each additional IT worker contributes about $338,000 to a firm's total value added. The data also allow us to conduct cross-sector comparisons at a statistically meaningful level. We find evidence that the marginal product of additional IT personnel in manufacturing sectors is higher than that in service sectors, and is significantly higher in Fortune 1000 firms than in smaller publicly traded firms.

Information Technologies, Production Function, IT Workers, Productivity

Abstract:
Consumer reviews may reflect not only perceived quality but also the difference between quality and price (perceived value). In markets where product prices change frequently, these price-influenced reviews may be biased as a signal of product quality when used by consumers possessing no knowledge of historical prices. In this paper, we develop an analytical model that examines the impact of price-influenced reviews on firm optimal pricing and consumer welfare. We quantify the price effects in consumer reviews for different formats of review systems using actual market prices and online consumer ratings data collected for the digital camera market. Our empirical results suggest that unidimensional ratings, commonly used in most review systems, can be substantially biased by price effects. In fact, unidimensional ratings are more closely correlated with ratings of product value than ratings of product quality compared to reviews provided by more complex systems separating ratings into different components. Our findings suggest the importance for firms to account for these price effects in their overall marketing strategy and suggest that review systems could better serve consumers by explicitly expanding review dimensions to separate perceived value and perceived quality.

online product reviews, review bias, price effects, empirical analysis, optimal pricing

Abstract:
We explore how broadband access drives changes in the quantity and diversity of consumption of online content by using panel data that describes household Internet usage before and after broadband adoption. Our data suggests that on average, broadband adoption increases usage by over 1300 minutes per month. We also find that information consumption becomes more evenly distributed within the population, driven in part by post-adoption usage gains of almost 1800 minutes per month among individuals who were in the lowest usage quintile before adopting broadband. After adopting broadband, this pre-adoption lowest-usage quintile consumes content in greater quantities than users in neighboring quintiles, passing both the second and third quintiles in terms of absolute usage. This suggests that these users may have had strong preferences for high-bandwidth content that was too costly to consume in a narrowband environment. We also show that broadband adoption increases the variety of content that users consume although many of these gains appear to be associated with an increase in the variety of sites visited within previously visited content categories rather than an expansion in the types of content consumed.

digital divide, broadband adoption, telecommunications policy, media, Internet

Abstract:
This paper examines how information provided by online reviews influences firms' pricing strategy for repeat purchase products. It is commonly understood that online reviews can reduce consumer uncertainty about product characteristics and, therefore, have the potential to increase product demand and firm profits. However, greater consumer information for repeat purchase products may affect consumers' propensity to switch among products or service providers, which can either increase or decrease price competition. The relative magnitude of these effects depends on the informativeness of consumer reviews, which is driven by the accuracy of reviews as well as the ability of consumers to obtain information from reviews when their idiosyncratic preferences over product characteristics might differ from the preferences of reviewers. The interplay of these competing effects results in an "S-shaped" relationship between the quality of reviews and firm profits. There exists an optimal level of consumer informedness from the firms' perspective and competing firms may have incentives to facilitate consumer reviews in some markets but not in others.

online product reviews, review informativeness, repeat purchase products, installed customer base, price competition, game theoretic model

Abstract:
The power of digital information processing has increased radically in the past decade. In principle, organizations can now gather and analyze significantly more external information. This, however, depends not only on technology, but also on the firm’s work practices and external orientation. We gather detailed data on organizational practices from 253 firms to examine the hypothesis that external focus is an important determinant of returns to IT investments. First, using survey-based measures, we show that external focus is highly correlated with organizational decentralization and information technology investments. Second, we show that a cluster of practices including decentralization, external focus and IT investment is associated with improved product innovation capabilities. Third, we report estimates from a 3-way complementarities model that indicates that the combination of external focus, decentralization and IT investment is associated with significantly higher productivity. In our sample, firms that have only one or two of these organizational practices in place are not any more productive than firms with none of them. We also introduce a new set of instrumental variables representing barriers to IT-related organizational change and use these measures to show that our results are robust when we account for the potential endogeneity of organizational investments. Our results may help explain why more “networked” regions and economies have experienced especially high returns to IT investment and suggest a set of practices that some managers may be able to use to increase their returns from IT investments.

: Information Technology, Productivity, Organizational Practices, External Focus, Complementarities, High Performance Work Practices, Product Development, High-Tech Clusters

Abstract:
Recently, the relative demand for skilled labor has increased dramatically. We investigate one of the causes, skill-biased technical change. Advances in information technology (IT) are among the most powerful forces bearing on the economy. Employers who use IT often make complementary innovations in their organizations and in the services they offer. Our hypothesis is that these co-inventions by IT users change the mix of skills that employers demand. Specifically, we test the hypothesis that it is a cluster of complementary changes involving IT, workplace organization and services that is the key skill-biased technical change. We examine new firm-level data linking several indicators of IT use, workplace organization, and the demand for skilled labor. In both a short-run factor demand framework and a production function framework, we find evidence for complementarity. IT use is complementary to a new workplace organization which includes broader job responsibilities for line workers, more decentralized decision-making, and more self-managing teams. In turn, both IT and that new organization are complements with worker skill, measured in a variety of ways. Further, the managers in our survey believe that IT increases skill requirements and autonomy among workers in their firms. Taken together, the results highlight the roles of both IT and IT-enabled organizational change as important components of the skill-biased technical change.

Abstract:
We find evidence of substantial regional differences in IT returns firms in the US. We show that these regional differences are attributable in part to knowledge spillovers generated by the mobility of IT workers among firms. We use a newly developed source of employee micro-data with employer identifiers and location information to model the mobility patterns of IT workers among firms. Our productivity estimates indicate that the rate of return to external IT investment is equal to about 20% the rate of return to internal IT investment. Implications for managers and policy makers are discussed.

knowledge spillovers, job-hopping, industry clusters, agglomeration, IT externalities, IT Productivity, High-Tech Clusters, IT Workforce

Abstract:
Studies of knowledge spillovers commonly represent the spillover pool with weighted measures of the knowledge capital of other firms. When these measures are utilized in a "knowledge production function" context, measurement error in a firm's own knowledge input can create upward biases in the estimated spillover coefficient. We find this bias can be substantial and that utilizing technological or spatial proximity to model knowledge transmission paths can increase the size of this bias. Our analysis also suggests that these bias problems can be addressed by using instrumental variables or by more precisely modeling transmission paths.

knowledge spillovers, production function, R&D, technological proximity, measurement error

Abstract:
We use new sources of micro-data to estimate the short-run impact that H-1B employment has had on IT wages. Our primary data source describes employers, demographics, and wages for a segment of the US IT workforce. We integrate these data with external datasets describing employers’ H-1B applications, available through Department of Labor databases, and offshore employment, measured through the self-reported employment of a large sample of offshore IT workers. Our estimates indicate that H-1B admissions at the current levels are associated with about a 5% drop in computer programmer and systems analyst wages.

IT Workers, Globalization, H-1B Visas, Offshoring, Immigration, Job Displacement, Labor Shortage, Skills

Abstract:
Online product reviews may be subject to self-selection biases that impact consumer purchase behavior, online ratings' time series, and consumer surplus. This occurs if early buyers hold different preferences than do later consumers regarding the quality of a given product. Readers of early product reviews may not successfully correct for these preference differences when interpreting ratings and making purchases. In this study, we develop a model that examines how idiosyncratic preferences of early buyers can affect long-term consumer purchase behavior as well as the social welfare created by review systems. Our model provides an explanation for the structure of product ratings over time, which we empirically test using online book reviews posted on Amazon.com. Our analysis suggests that firms could potentially benefit from altering their marketing strategies, such as pricing, advertising, or product design, to encourage consumers likely to yield positive reports to self-select into the market early and generate positive word of mouth for new products. On the other hand, self-selection bias, if not corrected, decreases consumer surplus.

online product reviews, self selection, consumer heterogeneity, herding

Abstract:
The academic literature on hospital information technology is relatively sparse despite its important implications for hospital management, with only limited empirical evidence linking implementation of hospital IT systems with improvements in health care quality, financial and operational performance. This study aims to corroborate the observational evidence by using a cost function estimation approach to examine the impact of IT capital investments on hospital cost efficiency.

health information technology, administrative applications, clinical applications

Abstract:
Some implications of e-Commerce financial services firms are becoming clear. The web drives transparency, and increases the information endowment of all market participants. It is harder to manipulate customers' behavior, or to overcharge them. Transparency drives differential pricing. Not all customers can or should be charged the same prices. Transparency reduces the viability of cross-subsidies between customers can or between products. The differential pricing enabled by the web transforms distribution channels, and enables direct distribution and alternative forms of distribution. Some intermediateraries may be bypassed altogether, while others may rapidly lose their best, most profitable, and previously most loyal customers.

Net-based financial services, transparency, pricing, bypass and disintermediation