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Revolutionary Effects of New Information Technologies

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  • van den Berg, Gerard J.

    (University of Groningen)

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.

Suggested Citation

  • van den Berg, Gerard J., 2005. "Revolutionary Effects of New Information Technologies," IZA Discussion Papers 1655, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1655
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    Cited by:

    1. John Van Reenen, 2006. "The Growth of Network Computing: Quality-Adjusted Price Changes for Network Servers," Economic Journal, Royal Economic Society, vol. 116(509), pages 29-44, February.

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    More about this item

    Keywords

    informational frictions; imperfect information; heterogeneity; production technology;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - 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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