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Revolutionary Effects of New Information Technologies

32 Pages Posted: 21 Jul 2005  

Gerard J. van den Berg

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

Multiple version iconThere are 3 versions of this paper

Date Written: July 2005

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.

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

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

Suggested Citation

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

Gerard J. Van den Berg (Contact Author)

VU University Amsterdam - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Tinbergen Institute

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