Information Technology and Returns to Scale

61 Pages Posted: 26 Sep 2019 Last revised: 3 May 2021

See all articles by Danial Lashkari

Danial Lashkari

Boston College

Arthur Bauer

Center for Research in Economics and Statistics (CREST)

Jocelyn Boussard

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: May 17, 2018

Abstract

Disciplined by detailed firm-level data from France, we study the response of the macroeconomy to the dramatic fall observed in IT prices from 1990 to 2007. Our model of industry dynamics with heterogeneous firms accounts for the novel fact that demand for hardware and software, when compared to other inputs, is more elastic in firm size. We show that this nonhomotheticity has important consequences for firm-level returns to scale and for the aggregate response. In our calibration, falling IT prices quantitatively explain around half of the changes in concentration and in the composition of aggregate labor share in France.

Keywords: Information Technology, Labor Share, Industry Concentration, Production Functions, Nonhomotheticity, Firm Heterogeneity

JEL Classification: O3, O4, E2

Suggested Citation

Lashkari, Danial and Bauer, Arthur and Boussard, Jocelyn, Information Technology and Returns to Scale (May 17, 2018). Available at SSRN: https://ssrn.com/abstract=3458604 or http://dx.doi.org/10.2139/ssrn.3458604

Danial Lashkari (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Arthur Bauer

Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Jocelyn Boussard

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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