Information Technology and Returns to Scale

Danial Lashkari, Arthur Bauer () and Jocelyn Boussard
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Arthur Bauer: ENSAE-CREST

No 984, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifically helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocations toward low-labor-share firms.

Keywords: Information Technology; Labor Share; Industry Concentration; Production Function Estimation; Nonhomotheticity; Firm Heterogeneity (search for similar items in EconPapers)
JEL-codes: E2 O3 O4 (search for similar items in EconPapers)
Date: 2019-09-26
New Economics Papers: this item is included in nep-bec, nep-com, nep-ict and nep-mac
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Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Information Technology and Returns to Scale (2024)
Working Paper: Information Technology and Returns to Scale (2020)
Working Paper: Information Technology and Returns to Scale (2019)
Working Paper: Information Technology and Returns to Scale (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:984

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