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1997 Working Papers

No. 197

The Self-governing Internet: Coordination by Design

Sharon Eisner Gillett and Mitchell Kapor

January 1997

Contrary to its popular portrayal as anarchy, the Internet is actually managed, though not by a manager in the traditional sense of the word. This paper explains how the decentralized Internet is coordinated into a unified system. It draws an analogy to an organizational style in which a manager sets up a system that allows 99% of day-to-day functions to be handled by empowered employees, leaving the manager free to deal with the 1% of exceptional issues. Within that framework, it discusses:

  • how the Internet's technical design and cultural understandings serve as the system that automates 99% of Internet coordination;
  • what the 1% of exceptional issues are in today's Internet, how they are handled by multiple authorities, and where the stresses lie in the current structure;
  • and the differences in mindset that distinguish the Internet's self-governance from the management of more traditional communication systems.

No. 198

Tools for inventing organizations: Toward a handbook of organizational processes

Thomas W. Malone, Kevin Crowston, Jintae Lee, Brian Pentland, Chrysanthos Dellarocas, George Wyner, John Quimby, Charley Osborne, and Abraham Bernstein

January 1997

This paper describes a novel theoretical and empirical approach to tasks such as business process redesign, enterprise modeling, and software development. The project involves collecting examples of how different organizations perform similar processes, and organizing these examples in an on-line "process handbook". The handbook is intended to help people: (1)╩redesign existing organizational processes, (2)╩invent new organizational processes (especially ones that take advantage of information technology), (3)╩learn about organizations, and (4)╩automatically generate software to support organizational processes. A key element of the work is an approach to analyzing processes at various levels of abstraction, thus capturing both the details of specific processes as well as the "deep structure" of their similarities. This approach uses ideas from computer science about inheritance and from coordination theory about managing dependencies. A primary advantage of the approach is that it allows people to explicitly represent the similarities (and differences) among related processes and to easily find or generate sensible alternatives for how a given process could be performed. In addition to describing this new approach, the work reported here demonstrates the basic technical feasibility of these ideas.

No. 199

Bundling Information Goods: Pricing, Profits and Efficiency

Yannis Bakos and Erik Brynjolfsson

January 1997

We analyze pricing strategies for digital information goods, such as those increasingly available via the Internet. Because perfect copies of such goods can be created and distributed almost costlessly, any single positive price for copies is likely to be socially inefficient. However, we show that, under certain conditions, a monopolist selling information goods in large bundles instead of individually may nearly eliminate this inefficiency. In addition, the bundling strategy can extract as profits an arbitrarily large fraction of the area under the demand curve for the individual goods while commensurately reducing consumers' surplus. The bundling strategy is particularly attractive when the marginal costs of the goods are very low, when the correlation in the demand for different goods is low, and when consumer valuations for the individual goods are of comparable magnitude. We also describe the optimal pricing strategies when these conditions do not hold; show how private incentives for bundling can diverge from social incentives; and describe a mechanism to recover information about the underlying demand for each individual good. The predictions of our analysis appear to be consistent with empirical observations of the markets for Internet and on-line content, cable television programming, and copyrighted music.

No. 200

Information Systems and the Organization of Modern Enterprise

Erik Brynjolfsson and Haim Mendelson

September 1997

In this short paper we briefly discuss the newly emerging organizational paradigms and their relationship to the prevailing trends in information technology (IT). We argue that IT is an important driver of this transformation. Finally, we place the studies selected for the special issue of the Journal of Organizational Computing within this context.

No. 201

Information Technology as a Factor of Production: The Role of Differences Among Firms

Erik Brynjolfsson and Lorin Hitt

September 1997

Despite evidence that information technology (IT) has recently become a productive investment for a large cross-section of firms, a number of questions remain. Some of these issues can be addressed by extending the basic production function approach that was applied in earlier work. Specifically, in this short paper we 1) control for individual firm differences in productivity by employing a "firm effects" specification, 2) consider the more flexible translog specification instead of only the Cobb-Douglas specification, and 3) allow all parameters to vary between various subsectors of the economy.

We find that while "firm effects" may account for as much as half of the productivity benefits imputed to IT in earlier studies, the elasticity of IT remains positive and statistically significant. We also find that the estimates of IT elasticity and marginal product are little-changed when the less restrictive translog production function is employed. Finally, we find only limited evidence of differences in IT's marginal product between manufacturing and services and between the "measurable" and "unmeasurable" sectors of the economy. Surprisingly, we find that the marginal product of IT is at least as high in firms that did not grow during 1988-1992 sample period as it is in firms that grew.

No. 202

Information Technology and Productivity: A Review of the Literature

Erik Brynjolfsson and Shinkyu Yang

September 1997

In recent years, the relationship between information technology (IT) and productivity has become a source of debate. In the 1980s and early 1990s, empirical research generally did not significant productivity improvements associated with IT investments. More recently, as new data are identified and new methodologies are applied, several researchers have found evidence that IT is associated not only with improvements in productivity, but also in intermediate measures, consumer surplus, and economic growth. Nonetheless, new questions emerge even as old puzzles fade. This survey reviews the literature, identifies remaining questions, and concludes with recommendations for applications of traditional methodologies to new data sources, as well as alternative, broader metrics of welfare to assess and enhance the benefits of IT.

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