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

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

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  modelsindividual  society language

7. Commodity production: Stable reproduction  stable money flows Regulation of behaviour by power coercive ideological institutions Capitalism  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 Basic Theory – I & C Processes 2

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) Stable relations within firms 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 knowledge(T) = knowledge(T-1) + information(t) – obsolete information(t) Utility U i (communication) of entity i builds up in time, is satisfied by communication and vanishes again. E.g. phone calls, music... Information usually is accumulated in knowledge: But: 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 Money as information technology Technology in search models Production of public good information Production of finite knowledge set information Production of models Selected model types describing technolgy in an economic context:

15. More Theory – Money as information technology 1 General Equilibrium Theory: 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. More Theory – Production of public good information Firm 2 no R&DR&D Firm 1no R&D R&D 0, 010, -10 -10, 105, 5 The R&D game: Not enough R&D in basic research! Cheaper and more advanced ICT cannot help.  Public funding  Patent system

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. To much R&D is carried out!  Clear property rights  Promote cooperation Advanced ICT might even worsen the problem!

20. More Theory – Production of Models World (Model M W ) z 0 = w 0 +  0 u1 + ß 0 u2 Entity 1 (Model M 1 ) z 1 =  1 u1 + ß 1 u2 Entity 2 Original Model M2: z 2 = ß 2 u2 Modified Model M M2 : z 2 =(1-  )ß 2 u2+  (  1M u1+ß 1M u2) Ideological Model M M : z 1M =  1M u1 + ß 1M u2 The cheaper ideological influence (advanced ICT) the less direct coercive power is needed! Ideological Power

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 a ij sectors wages profits cons.inv.gov.exp. GDP distribution Final demand components Input Output Analysis

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) General University Fund Regulations Human Capital Model Innovation Model AUSTRIA 3 Macroeconomic Rsults

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 www.databank.it/star. STAR Website

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 !