Information Technology, Efficient Restructuring and the Productivity Puzzle

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Information Technology, Efficient Restructuring and the Productivity Puzzle

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Grüner, Hans Peter

Abstract

Labour productivity in the US has recently grown more strongly than in most European countries. It is often argued that the American productivity increase is due to the widespread introduction of new information and communication technologies (ICT). But why have the same technologies not similarly increased Europe's labour productivity? This paper provides a theoretical explanation for this productivity puzzle based on an extension of Radner's (1992) model of hierarchical information aggregation. The introduction of new ICTs enables organizations to process any given amount of information with a shorter delay. This enables organizations to restructure and solve incentive problems without risking excessive delay. Even a marginal improvement in the ICT can yield significant increases in labour productivity if - and only if - the organization is drastically restructured. Restructuring yields hierarchies with fewer layers and fewer managers, all working under incentive pay and providing first best effort. However, managers need not participate in the gains associated with the restructuring of their business firms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6109.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6109

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-02-24 (All new papers)
NEP-EFF-2007-02-24 (Efficiency & Productivity)
NEP-ICT-2007-02-24 (Information & Communication Technologies)
NEP-INO-2007-02-24 (Innovation)

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

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