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Information Technology and Returns to Scale

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  • Danial Lashkari
  • Arthur Bauer
  • Jocelyn Boussard

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 (i) a substitution between factors and/or (ii) 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.

Suggested Citation

  • Danial Lashkari & Arthur Bauer & Jocelyn Boussard, 2024. "Information Technology and Returns to Scale," American Economic Review, American Economic Association, vol. 114(6), pages 1769-1815, June.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:6:p:1769-1815
    DOI: 10.1257/aer.20220522
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    References listed on IDEAS

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    1. Maya Eden & Paul Gaggl, 2018. "On the Welfare Implications of Automation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 15-43, July.
    2. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 650-687.
    3. Ulrich Doraszelski & Jordi Jaumandreu, 2018. "Measuring the Bias of Technological Change," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1027-1084.
    4. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 650-687.
    5. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    6. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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