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Productivity Program meeting. (Bureau News).

The NBER's Program on Productivity met in Cambridge on March 14. Shane Greenstein, NBER and Northwestern University, organized thc meeting. These papers were discussed:

Barbara K. Atrostic and Sang Nguyen, Center for Economic Studies, "IT and Productivity in IT-Using and IT-Producing Industries: New Micro Data Evidence" Discussant: Christopher Forman, Carnegie-Mellon University

James Bessen, Research on Innovation, "Technology Adoption Costs and Productivity Growth: The Transition to Information Technology" Discussant: Shane Greenstein

Dan Elfenbein, Harvard University, and Josh Lerner, NBER and Harvard University, "Designing Alliance Contracts: Exclusivity and Contingencies in Internet Portal Alliances"

Discussant: Iain Cockburn, NBER and Boston University

Kenneth Flamm, University of Texas, Austin, "Moore's Law and the Economics of Semiconductor Price Trends"

Discussant: Rebecca Henderson, NBER and MIT

Minjae Song, Harvard University, "Measuring Consumer Welfare in the CPU Marker"

Sean M. Dougherty, Robert H. McGuckin, and Bart Van Ark, The Conference Board, Internationalization and the Changing Structure of Business

R&D: Recent Trends and Measurement Implications"

Atrostic and Nguyen use new plant-level data on information technology (IT) collected by the U.S. Census Bureau to provide evidence on the labor productivity impact of IT across U.S. manufacturing plants in IT-producing and IT-using industries (defined under the North American Industrial Classification System). Previous plant-level studies examining the link between productivity and computers or other IT in the United States typically focused on the presence of computers, either using data on the stock of computer capital or on current IT or computer investment as proxies for the computer stock. Studies that have detailed information on IT generally have a relatively small sample, do not include smaller plants, or are limited to specific manufacturing industries. The data for this study, in contrast, are collected from about 30,000 plants across the U.S. manufacturing sector. The authors use a direct measure of IT: information on the presence of computer networks. They find that computer networks have a posit ive and significant effect on labor productivity after they control for other important factors, such as capital intensity and other plant characteristics, and even after taking account of possible endogeneity of the computer network variable. Also, small plants appear to use computer networks more efficiently than large plants.

Using two panels of U.S. manufacturing industries, Bessen estimates capital adjustment costs from 1961 to 1996. He finds that adjustment costs rose sharply from 1974-83: they more than doubled, from about 3 percent of output to around 7 percent. Moreover, this increase is specifically associated with a shift to investment in IT. But such large adoption costs imply that the Solow residual mismeasures productivity growth: adoption costs are resource costs that represent an unmeasured investment. Bessen finds that when this investment is included, productivity grew about 0.5 percent per year faster than official measures during the 1970s and early 1980s, reducing the size of the productivity "slowdown." Indeed, estimated productivity growth rates were roughly the same from 1974-88 as from 1949-73. Thus technology transitions critically affect productivity growth measurement.

Elfenbein and Lerner test theoretical propositions from the technology licensing literature and from the literature on information and control in alliances, using a sample of over 100 Internet portal alliance contracts. The technology licensing literature suggests that one of the major factors driving firms' decisions to transact exclusively for an innovation is the magnitude or importance of the innovation. The authors find some support for this hypothesis, but in this setting exclusivity decisions also relate to other factors. The literature on information and control in alliances suggests that the use of verifiable performance measures to allocate state contingent decision rights depends on the level of information asymmetry between the two parties and on the precision of the information. The authors test these propositions by looking at how the timing of agreements (a proxy for environmental uncertainty) and exclusivity restrictions (a proxy for incentive conflict) affect the use of a subset of available performance measures. Consistent with the literature, they find that contracts involve fewer contingencies as industries have matured. Where incentive conflicts are potentially greater, more contingencies are used.

Flamm starts by describing the history of Moore's Law, and explains why it has such potentially wide-ranging consequences. He then shows how a Moore's Law prediction must be coupled with other assumptions in order to produce an economically meaningful link to what is the key economic variable of the information age: the cost or price of electronic functionality, as implemented in a semiconductor integrated circuit. Flamm then relates the historical evolution of semiconductor prices through the mid-1990s to developments in several key parameters over this historical period. He surveys the evidence on acceleration in the rate of decline in leading edge semiconductor prices in the mid-I 990s and suggests that measured increases in historical rates of decline seem unlikely to persist. Finally, he explores the nature of the man-made historical and institutional economic processes that made these technical accomplishments possible, and argues that their consequence has been an unappreciated but radical transformati on of the industrial framework in which R and D is undertaken within the global semiconductor industry.

The personal computer Central Processing Unit (CPU) has undergone a dramatic improvement in quality, accompanied by an equally remarkable drop in prices in the 1990s. How have these developments in the CPU market affected consumer welfare? Song estimates demand for CPUs and measures consumer welfare. The welfare calculations show that consumer surplus makes up approximately 90 percent of the total social surplus and that a large part of the welfare gains comes from the introduction of new products. Simulation results show how "quality competition" among firms can generate a large gap between the reservation and actual prices.

Dougherty, Inklaar, McGuckin, and Van Ark examine the structure of R and D internationally using information collected in interviews of 25 multinational companies in four high-tech industries from the United States, European Union, and Japan. They look at the composition of R and D activities within the firm, how they are structured internationally, and how they are changing. The focus is on how the production of research and development differ, based on the relative uncertainty of research output as compared to development. The economic distinctions between research and development have broad implications for how companies allocate their resources, and they help to explain recent trends, including research becoming more concentrated in the United States and the development of commercial products more dispersed worldwide. The authors examine changes in international R and D costs using new purchasing power estimates for R and D and compare these to changes in the trends of R and D investments internationally from 1987 to 1997.
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Title Annotation:National Bureau of Economic Research
Publication:NBER Reporter
Geographic Code:1USA
Date:Mar 22, 2003
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