Economic Impacts of Information and Communication Technologies

1. Economic Impacts of Information and Communication Technologies Univ.-Prof.Dr. Hardy Hanappi Institute of Economics University of Technology of Vienna http://www.vwl.tuwien.ac.at/hanappi/

2. Overview • 1 Basic Theory: From economic processes to technological progress, and back • 2 More Theory: The role of technology in dynamic economic models • 3 From Theory to Policy: A consistent framework for analysis applied in Austria • 4 More Empirical Findings: Selected recent results of economic ICT impacts in Europe

3. Basic Theory • Economic Processes • Information & Communication Processes • Economics  ICT • ICT  Economics • History: Economics  ICT

4. society Basic Theory – Economic Processes 1 Economics: Primary metabolism of society primary distribution process production time time secondary distribution process Classical view of reproduction and growth consumption

5. Basic Theory – Economic Processes 2 Commodity producing societies Distribution 1 production Distribution 2 consumption organisation commodities reproduction growth revenues production units markets expenses commodities households labour expenses wages households

6. Basic Theory – I & C Processes 1 What is Information? • Periodicity: years, days • Living systems: adaption to periodicity, copy in structure, memory is impicit in evolved structure • Animals & Humans: memory explicit in individuals, used as model for anticipating behaviour memory  models individual  society language

7. Basic Theory – I & C Processes 2 Basic Theory – I & C Processes 2 Commodity production: Stable reproduction  stable money flows coercive Regulation of behaviour by power institutions ideological  Market mechanisms, money, price systems (information technology) Capitalism Production of new information becomes necessary for the survival of production units  new production processes, new products, new utilities, new institutions

8. Basic Theory – Economics  ICT 1 Maintenance of profitrate  new technology Level of profits:  = revenue - cost revenue = price x quantity cost = wagerate x labourtime + interestrate x capital Volatility of profits:  (profitrate) = f (stable relations) within firms Stable relations between firms between states

9. Basic Theory – Economics  ICT 2 New technology must drive: price  : market power, quality (actual or perceived), price ratchets quantity  : new products (versions), new needs (discovered or produced), quantity ratchets, expanding geographical markets wagerate  : against unions, lower reproduction cost, globalisation labourtime  : technology, cheaper regulation (lower taxes) interestrate  : finance versus industrial capital capital  : technology, cheaper regulation (lower taxes) infrastructure cost  : public institutions (education, health, transport, ...) cost of social peace  : law, social identity, power systems, ...

10. Basic Theory – ICT  Economics 1 Information technology provides information commodities • Large amounts, very low variable cost • Bottleneck: opportunity cost of consumers (getting attention) • Bottleneck: selection of relevant information (names, „brands“) • Bottleneck: Decreasing information processing capacities  Changing firm structure, changing institutional structure  Global shake-up of profitrates

11. Basic Theory – ICT  Economics 2 Communication processes (subset of information processes) Defining characteristic: temporal aspect Information usually is accumulated in knowledge: knowledge(T) = knowledge(T-1) + information(t) – obsolete information(t) But: Utility Ui(communication) of entity i builds up in time, is satisfied by communication and vanishes again. E.g. phone calls, music ... Echo effects: not receiving communication signals is interpreted as signal!  filling in attention gaps, economy of time, substitution strategies

12. Basic Theory – Economics  ICT 1 Prevailing direction of causality: From economics to ICT

13. Basic Theory – Economics  ICT 2 Swarming:

14. More Theory Selected model types describing technolgy in an economic context: • Money as information technology • Technology in search models • Production of public good information • Production of finite knowledge set information • Production of models

15. More Theory – Money as information technology 1 General Equilibrium Theory: typical typical Observed quantities and coins carry information: Strong welfare implications !

16. More Theory – Money as information technology 2 Disequilibrium theories: • Prices signal needs of households • Markets transmit need signals to production units • Production units signal their technological possibilities to markets • Markets transmit technology signals to households • Exchange takes place in market disequilibrium • Adaption takes place in expectations disequilibrium • Evolution of needs due to disequilibrium • Evolution of technology due to disequilibrium

17. More Theory – Technology in search models Example: Searching for a low price shop No information acquired Information bought Use information if that is

18. Firm 2 no R&D R&D Firm 1 no R&D 0, 0 10, -10 R&D -10, 10 5, 5 More Theory – Production of public good information The R&D game: Not enough R&D in basic research!  Public funding  Patent system Cheaper and more advanced ICT cannot help.

19. More Theory – Production of finite knowledge set information Tragedy of the Commons model Several firms produce information in the same finite knowledge area. Since for every single firm additional R&D still is profitable, they still carry on, even if (from an aggregate point of view) it would be wise to move to a new area of research.  Clear property rights To much R&D is carried out!  Promote cooperation Advanced ICT might even worsen the problem!

20. World (Model MW) z0 = w0 + 0 u1 + ß0 u2 Entity 1 (Model M1) z1 = 1 u1 + ß1 u2 Entity 2 Original Model M2: z2 = ß2 u2 Modified Model MM2: z2=(1-)ß2 u2+(1Mu1+ß1M u2) Ideological Model MM: z1M = 1M u1 + ß1M u2 More Theory – Production of Models Ideological Power The cheaper ideological influence (advanced ICT) the less direct coercive power is needed!

21. From Theory to Policy • A model for Austria • How information technology enters • Some quantitative results

22. From Theory to Policy – A model for Austria sectors cons. inv. gov.exp. Input Output Analysis sectors aij Final demand components wages GDP distribution profits

23. From Theory to Policy – How information technology enters 1. As a sector in IO-analysis 2. Modified by R&D policy Public R&D expenditure (socioeconomic structure) Innovation Model AUSTRIA 3 Macroeconomic Rsults General University Fund Human Capital Model Regulations

24. From Theory to Policy – Some selected results 1 Four policies: Demand side, supply side, deregulation, education initiative

25. From Theory to Policy – Some selected results 2

26. More Empirical Findings • Recent Eurostat statistics • Results from the S.T.A.R. project • The productivity paradoxon

27. More empirical findings – Eurostat 1

28. More empirical findings – Eurostat 2

29. More empirical findings – Eurostat 3

30. More empirical findings – Eurostat 4

31. More empirical findings – S.T.A.R. 1 STAR Website www.databank.it/star.

32. More empirical findings – S.T.A.R. 2 • Ambivalent influence of ICT on employment • Peacemeal engineering succeses in e-commerce • Slow recovery from the stock exchange bubble The productivity paradoxon starts to be solved !