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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 (Forthcoming)

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 1) a substitution between factors and/or 2) 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.

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