Week3_Rawley and Simcoe (2013)_Aaron

Information Technology, Productivity, and Asset Ownership: Evidence from Taxicab Fleets

Since Coase (1937), theories on transaction cost economics and property rights along with a large body of empirical evidence have studied the determinants of the boundary of the firms. Demsetz (1988) propose an alternative predictor, the changes in the productivity of potential trading partners. His thesis has been lacking of empirical support due to informal and imprecise logic. Rawley and Simcoe (2013) thus develop and test a formal productivity-based theory of asset ownership.

Specifically, they examines the effect of productivity-enhancing technology adoption in taxicab industry on vertical integration and skilled workforce. They use microdata on taxicab firms’ vehicle ownership patterns from the economic census during a period from 1992 through 1997 when new computerized dispatching system were first widely adopted.

Their empirical results show that adopting such system cause taxicab firs to increase the percentage of vehicle they own and reduce the returns to skilled labor. This study contributes to two bodies of literature, the strategy literature on firm boundaries and economic literature on skill-biased technical change. First, this paper took the first step to formalize the relationship between productivity and firm boundary and empirically test it. Second, their finding contribute to an emerging view that IT adoption does not always increase the relative demand for more skilled labor.