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  5. Information Technology and Returns to Scale

Information Technology and Returns to Scale

  • Danial Lashkari
  • Arthur Bauer
  • Jocelyn Boussard
American Economic Review
vol. 114, no. 6, June 2024
(pp. 1769-1815)
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Abstract

What are the implications of the dramatic fall in IT prices for aggregate technology? When firm-level technologies are continuously differentiable, a factor price shock leads to (i) a substitution between factors and/or (ii) an endogenous response of returns to scale. The second channel is governed by the output elasticity of relative factor demand. Using detailed firm-level data from France, we estimate this elasticity to be positive for IT factor demand. A quantitative exercise accounting for both technological channels shows that falling IT prices can explain much of the changes in concentration and the composition of aggregate labor share in France.

Citation

Lashkari, Danial, Arthur Bauer, and Jocelyn Boussard. 2024. "Information Technology and Returns to Scale." American Economic Review, 114 (6): 1769-1815. DOI: 10.1257/aer.20220522

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • D33 Factor Income Distribution
  • E25 Aggregate Factor Income Distribution
  • L63 Microelectronics; Computers; Communications Equipment
  • L86 Information and Internet Services; Computer Software