Erik Brynjolfsson

The productivity paradox of information technology

The retationship between information technology IT and productivity is widely discussed but little understood. Delivered computing power in the U.S. economy has increased by more than two orders of magnitude since 1970 (Figure 1) yet productivity, especially in the service sector, seems to have stagnated (Figure 2). Given the enormous promise of IT to usher in «the biggest technological revolution men have known» [29], disillusionment and even frustration with the technology is increasingly evident in statements like «No, computers do not boost productivity, at least not most of the time» [13]. The increased interest in the «productivity paradox,» as it has become known, has engendered a significant amount of research, but thus far, this has only deepened the mystery

Productivity, business profitability, and consumer surplus: three different measures of information technology value

The business value of information technology (IT) has been debated for a number of years. While some authors have attributed large productivity improvements and substantial consumer benefits to IT, others report that IT has not had any bottom line impact on business profitability. This paper focuses on the fact that while productivity, consumer value, and bush ness profitability are related, they are ultimate1 Allen Lee was the accepting senior editor for this paper. 2 An earlier version of this paper appears in the

Beyond the productivity paradox

of output produced per unit of input. While it is easy to define, it is notoriously difficult to measure, especially in the modern economy. In particular, there are two aspects of productivity that have increasingly defied precise measurement: output and input. Properly measured, output should include not just the number of widgets coming out of a factory, or the lines of code produced by a programming team, but rather the value created for consumers. Fifty years ago, tons of steel or bushels of corn were a reasonable proxy for the value of output. In today’s economy, value depends increasingly on product quality, timeliness, customization, convenience, variety, and other intangibles. Why Should We Care About Productivity?

Network externalities in microcomputer software: an econometric analysis of the spreadsheet market

Because of network externalities, the success of a software product may depend in part on stalled base and its conformance to industry standards. This research builds a hedonic model to determine the effects of network externalities, standards, intrinsic features and a time trend on microcomputer spreadsheet software prices. When data for a sample of products during the 1987-1992 time period were analyzed using this model, four main results emerged: 1 Network externalities, as measured by the size of a products installed base, significantly increased the price of spreadsheet products: a one percent increase in a products installed base was associated with a 0.75% increase in its price. 2 Products which adhered to the dominant standard, the Lotus menu tree interface, commanded prices which were higher by an average of 46%. 3 Although nominal prices increased slightly during this time period, quality-adjusted prices declined by an average of 16% per year. 4 The hedonic model was found to be a good predictor of actual market prices, despite the fact that it was originally estimated using list prices. Several variations of the model were examined, and, while the qualitative findings were robust, the precise estimates of the coefficients varied somewhat depending on the sample of products examined, the weighting of the observations and the functional form used in estimation, suggesting that the use of hedonic methods in this domain is subject to a number of limitations due, inter alia, to the potential for strategic pricing by vendors.

Does information technology lead to smaller firms

Many changes in the organization of work in the United States since 1975 have been attributed to the increased capabilities and use of information technology IT in business. However, few studies have attempted to empirically examine these relationships. The primary goal of this paper is to assess the hypothesis that investments in information technology are at least partially responsible for the important organizational change, the shift of economic activity to smaller firms. We examine this hypothesis using industry-level data on IT capital and four measures of firm size, including employees and sales per firm. We find broad evidence that investment in IT is significantly associated with subsequent decreases in the average size of firms. We also find that these decreases in firm size are most pronounced two to three years after the IT investment is made.

Information Technology and Productivity: A Review of the Literature

In recent years, the relationship between information technology (IT) and productivity has become a source of debate. In the 1980s and early 1990s, empirical research generally did not significant productivity improvements associated with IT investments. More recently, as new data are identified and new methodologies are applied, several researchers have found evidence that IT is associated not only with improvements in productivity, but also in intermediate measures, consumer surplus, and economic growth. Nonetheless, new questions emerge even as old puzzles fade. This survey reviews the literature, identifies remaining questions, and concludes with recommendations for applications of traditional methodologies to new data sources, as well as alternative, broader metrics of welfare to assess and enhance the benefits of IT.

Consumer Decision-Making at an Internet Shopbot: Brand Still Matters

Internet shopbots compare prices and services levels at competing retailers, creating a laboratory for analysing consumer choice. We analyse 20,268 shopbot consumers who select various books from 33 retailers over 69 days. Although each retailer offers a homogeneous product, we find that brand is an important determinant of consumer choice. The three most heavily branded retailers hold a

From Vendors to Partners: Information Technology and Incomplete Contracts in Buyer-Supplier Relationships

1.72 price advantage over more generic retailers in head-to-head price comparisons. In particular, we find that consumers use brand as a proxy for retailer credibility in non-contractible aspects of the product and service bundle, such as shipping reliability. Copyright 2001 by Blackwell Publishing Ltd

Information technology and internal firm organization: an exploratory analysis

As search costs and other coordination costs decline, theory predicts that firms should optimally increase the number of suppliers with which they do business. Despite recent declines in these costs due to information technology, there is little evidence of an increase in the number of suppliers used. On the contrary, in many industries, firms are working with fewer suppliers. This suggests that other forces must be accounted for in a more complete model of buyer supplier relationships. This article uses the theory of incomplete contracts to illustrate that incentive considerations can motivate a buyer to limit the number of employed suppliers. To induce suppliers to make investments that cannot be specified and enforced in a satisfactory manner via a contractual mechanism, the buyer must commit not to expropriate the ex post surplus from such investments. Under reasonable bargaining mechanisms, such a commitment will be more credible if the buyer can choose from fewer alternative suppliers. Information technology increases the importance of noncontractible investments by suppliers, such as quality, responsiveness, and innovation; it is shown that when such investments are particularly important, firms will employ fewer suppliers, and this will be true even when search and transaction costs are very low.

Shared Information Goods

This paper examines the relationship between information technology (IT) and the organizational architecture of firms. Firms that are extensive users of information technology tend to adopt a complementary set of organizational practices that include: decentralization of decision authority, emphasis on subjective incentives, and a greater reliance on skills and human capital. We explore these relationships using detailed data on work systems and information technology spending for 273 large firms. Overall, we find that increased investment in IT is linked to a system of decentralized authority and related practices. Our findings may help resolve some of the questions about the relationships of information technology to internal organization and provide insight into the optimal organization of knowledge work.