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/. Overview. 1 Basic Theory: From economic processes to technological progress, and back 2 More Theory:
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Univ.-Prof.Dr. Hardy Hanappi
Institute of Economics
University of Technology of Vienna
From economic processes to technological progress, and back
The role of technology in dynamic economic models
A consistent framework for analysis applied in Austria
Selected recent results of economic ICT impacts in Europe
society TechnologiesBasic Theory – Economic Processes 1
Primary metabolism of society
Classical view of
Commodity producing societies
What is Information?
Basic Theory – I & C Processes 2
Stable reproduction stable money flows
Regulation of behaviour by power
Market mechanisms, money, price systems (information technology)
Production of new information becomes necessary for the survival of production units
new production processes, new products, new utilities, new institutions
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)
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, ...
Information technology provides information commodities
Changing firm structure, changing institutional structure
Global shake-up of profitrates
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)
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
Prevailing direction of causality: From economics to ICT
Selected model types describing technolgy in an economic context:
General Equilibrium Theory:
Observed quantities and coins carry information:
Strong welfare implications !
Example: Searching for a low price shop
No information acquired
Use information if
Firm 2 Technologies
5, 5More Theory – Production of public good information
The R&D game:
Not enough R&D in basic research!
Cheaper and more advanced ICT cannot help.
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!
Advanced ICT might even worsen the problem!
World (Model M informationW)
z0 = w0 + 0 u1 + ß0 u2
Entity 1 (Model M1)
z1 = 1 u1 + ß1 u2
Original Model M2:
z2 = ß2 u2
Modified Model MM2:
z2=(1-)ß2 u2+(1Mu1+ß1M u2)
Ideological Model MM:
z1M = 1M u1 + ß1M u2More Theory – Production of Models
The cheaper ideological influence (advanced ICT) the less direct coercive
power is needed!
Final demand components
1. As a sector in IO-analysis
2. Modified by R&D policy
Public R&D expenditure (socioeconomic structure)
General University Fund
Four policies: Demand side, supply side, deregulation, education initiative
The productivity paradoxon starts to be solved !