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Revolutionary Effects of New Information Technologies


Gerard J. Van den Berg


VU University Amsterdam - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); Tinbergen Institute

July 2005

IZA Discussion Paper No. 1655

Abstract:     
In markets with imperfect information and heterogeneity, the information technology affects the rate at which agents meet, which in turn affects the distribution of production technologies across firms. We show that in models for such markets there are typically multiple equilibria because reservation utility levels and the lowest production technology in use affect each other. The adoption of novel information technologies may then entail a revolution in the sense of a move from an inefficient to an efficient equilibrium. Inefficient production technologies are removed even in sectors where the new information technology has only recently been introduced. The effect is much larger than a marginal comparative-statics effect on a given equilibrium. The results apply to markets for consumer products, labor, intermediate goods, and (public) institutional services.

Number of Pages in PDF File: 32

Keywords: imperfect information, heterogeneity, production technology, informational frictions

JEL Classification: D43, D83, L11, L15, O33, J42, L86

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Date posted: July 21, 2005  

Suggested Citation

van den Berg, Gerard J., Revolutionary Effects of New Information Technologies (July 2005). IZA Discussion Paper No. 1655. Available at SSRN: http://ssrn.com/abstract=760724

Contact Information

Gerard J. Van den Berg (Contact Author)
VU University Amsterdam - Department of Economics ( email )
De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31 20 444 6132 (Phone)
+32 20 444 6020 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Tinbergen Institute
Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
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