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The Information Technology Productivity Paradox

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  • Mehmet Yorukoglu

    (Department of Economics, University of Chicago)

Abstract

A vintage capital model where the firm makes decisions about whether to replace or upgrade its old capital stock with new capital is developed in this paper. The model is used to study how technological characteristics of capital affect investment behavior. In particular, it is asked how the rate of technological advance, the compatibility between capital stocks of different vintages, and the extent of learning-by-doing affect investment behavior. The model sheds light on the "information technology productivity paradox." The results suggest that the paradox may just be an artifact of the estimation procedures used, which ignore the vintage features of capital. Finally, the key implications of the model are tested using firm-level data. The data support the implications of the model that information technology (IT) capital is associated with a strong learning-by-doing effect and that IT capital investment is lumpier than other kinds of capital investment. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0016
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 2 (April)
Pages: 551-592

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Handle: RePEc:red:issued:v:1:y:1998:i:2:p:551-592

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  1. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  2. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  3. Cooley, T.F. & Greenwood, J. & Yorukoglu, M., 1995. "The Replacement Problem," UWO Department of Economics Working Papers 9508, University of Western Ontario, Department of Economics.
  4. Erik J. Brynjolfsson & Thomas Malone & Vijay Gurbaxani & Ajit Kambil, 1991. "Does Information Technology Lead to Smaller Firms?," Working Paper Series 123, MIT Center for Coordination Science.
  5. Frank R. Lichtenberg, 1993. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc.
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