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Revolutionary Effects of New Information Technologies

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Author Info
Gerard J. van den Berg () (Free University Amsterdam, IFAU Uppsala, CEPR, Tinbergen Institute, INSEE-CREST and IZA Bonn)

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Abstract

In markets with imperfect information and heterogeneity, the information technology affects the rate at which agents meet, which in turn affects the distribution of production technologies across firms. We show that in models for such markets there are typically multiple equilibria because reservation utility levels and the lowest production technology in use affect each other. The adoption of novel information technologies may then entail a revolution in the sense of a move from an inefficient to an efficient equilibrium. Inefficient production technologies are removed even in sectors where the new information technology has only recently been introduced. The effect is much larger than a marginal comparative-statics effect on a given equilibrium. The results apply to markets for consumer products, labor, intermediate goods, and (public) institutional services.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1655.

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Length: 32 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1655

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Related research
Keywords: imperfect information; heterogeneity; production technology; informational frictions;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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References listed on IDEAS
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.:
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Cited by:
(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.)

  1. John Van Reenen, 2005. "The Growth of Network Computing: Quality Adjusted Price Changes for Network Servers," CEP Discussion Papers dp0702, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
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