NESIS
Productivity and Competitiveness in the New Information
Economy
26 – 27 June 2003, ISTAT, Rome
Investigating the
Productivity Paradox
Marco Alderighi
CERTeT - Bocconi University
2
Introduction
Starting Point:
The Solow Paradox: we see computers everywhere but in the
productivity statistics
Aim:
Theoretically explain why it is difficult to measure the impact of ICT
and why the impact of ICT could be underestimated.
Main points:
1. Conceptually separate:
• the ICT adoption (that does not increase the output) from
• ICT use (that increases the output)
2. Explain why firms adopt ICT and then they do not use
3. Show that measuring correlation between ICT adoption and
productivity is misleading.
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
3
Literature Review
Econometric studies:
•
’80 – early ’90: Productivity Paradox: Stassmann (90) Loveman (94),
Barau et al (91), Morrison and Berndt (90), Roach (84), Panko (91)
•
’90: The Solow Paradox (partially) solved: Wolff(99), Diewert & Fox
(99): error measurements; Brynjolfsson & Hitt (96), Bharadway et al
(99): flexibility, varieties, etc..; Gera et al. (99); Lehr_Licktenberg (99):
TFP vs LFP, Siegel (94) quality improvements; Tripett (99): various;
Theoretical explanations:
•
David (90): Leaning Process; Oliner & Sichel (93): Small share;
Lillrank et al (02) Customer Satisfaction & Option Value; Zagler (93):
gains no within but between firms, Belleflamme (01): product
differentiation; Alderighi (03): Adoption vs Use
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
4
The Model (i)
Principal-agent model - the agent has private information on his ICT skills
New Points:
A. adoption per se is not effective, use is effective
B. the investment is an upper bound of the work the agent can do
C. Principal cannot offer a contract including the investment
decision
A. – B. affect the technology:
Technology :
and
(the output depends on the use, but
the use can not be larger than the investment)
= Output
= Usage
Bocconi University - CERTeT
= Investment in ICT
NESIS Workshop 26 – 27 June 2003
5
The Model (ii)
C. affects the structure of the contract and the timing of the problem
Case 1: complete information (Benchmark case)
Case 2: incomplete information with Contractible investment
Case 3: incomplete information Without contractible investment
Agent’s utility :
Principal’s Utility:
= skills, private information of the agent with cdf and pdf: ,
(note:
means high skills,
means no skills)
= effort function, is increasing in (the more the knowledge the
lower the effort), and increasing in (the higher the use, the
higher the effort)
= transfer
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
6
The Model (iii)
Timing
1. Nature determines
2. Agent knows
3. Principal chooses and offers a contract to the agent
4. The agent accepts or rejects the contract
Benchmark case
2’. also the principal knows
Contractible investment
Without contractible investment
3’. the principal can offer a
contract including the investment
decision
3’. the principal cannot offer a
contract including the
investment decision
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
7
Case 1: Benchmark Case
Principal’s maximization problem:
First order conditions:
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
8
Case 2: Contractible Investment
Principal’s maximization problem:
First order conditions:
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
9
Case 3: Without Contractible Investment
Principal’s maximization problem:
First order conditions:
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
10
Results for B, C
Both in Benchmark case and in
Contractible case the
investment decision coincides
with the use decision (
).
High skilled workers perform
high usage of ICT, produce
more and are paid more than
low skilled workers.
Due to the incentive issue, in the
Contractible case there is “under
investment and under use” with
respect to the Benchmark case.
Bocconi University - CERTeT
Investment
Use
Transfer
high skilled
low skilled
NESIS Workshop 26 – 27 June 2003
11
Results for W
Without Contractible
Investment, investment
decision does not depend on
the skills (because it is
preceding)
flat contract
Investment
Use
Investment decision does not
coincide with the use decision (
).
Agents with lower skills accept
an incentive contract (
)
incentive contract
Transfer
high skilled
low skilled
Agents with higher skills accept
a flat contract (
)
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
12
Correlation between Investment and Output
B and C: Benchmark case and Contractible case
Perfect correlation between Output and Investment
Since
and
implies
W: Without Contractible investment case
Low correlation between Output and Investment
There is full correlation for high skilled workers
Since
and
implies
but no correlation for low skilled workers
Since
Bocconi University - CERTeT
but
implies
NESIS Workshop 26 – 27 June 2003
13
Simulation
Simulated Model
Draws: 100.000 for each .
is uniformly distributed in
is uniformly distributed in
Results: the correlation depends on the costs of the ICT investment
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003
14
Conclusions
Incomplete information without contractible investments
A. adoption per se is not effective, use is effective
B. the investment is an upper bound of the work the agent can do
C. Principal cannot offer a contract including the investment
decision
then
•
even if there is a full correlation between Output and Use
•
there is a weak correlation between Output and Investment
•
the correlation between Output and Investment decreases when
the costs of ICT investment are decrease.
Bocconi University - CERTeT
NESIS Workshop 26 – 27 June 2003