Professor Lorin Hitt

Keywords:

Information Technology, Productivity, Organizational Practices, External Focus

Abstract:

We combine detailed survey data on firms’ organizational practices with information technology (IT) intensity measures to test the hypothesis that along with decentralization, external focus is an important determinant of returns to IT investments. Using survey-based measures, we first show that external focus, decentralization, and information technology investments are highly correlated and associated with a firm’s product innovation capabilities. We then report estimates from a complementarities model that indicates that the output elasticity of IT investment is about 8-9% for firms that are both decentralized and externally focused, while IT investments in firms that have one or neither of these organizational assets in place do not significantly increase productivity. Both our product development and productivity estimates are robust to IV regressions that address the potential endogeneity of organizational investments. Our results may help explain why more “networked” regions and economies have experienced especially high returns to IT investment.

Notes:

Submitted version. Official full-text version available from the Association for Information Systems (AIS)

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Keywords:

information goods; electronic commerce; customized bundle; pricing; nonlinear programming

Abstract:

This paper proposes using nonlinear mixed-integer programming to solve the customized bundle-pricing problem in which consumers are allowed to choose up to N goods out of a larger pool of J goods. Prior work has suggested that this mechanism has attractive features for the pricing of information and other low-marginal cost goods. Although closed-form solutions exist for this problem for certain cases of consumer preferences, many interesting scenarios cannot be easily handled without a numerical solution procedure. In this paper, we investigate the efficiency gains created by customized bundling over the alternatives of pure bundling or individual sale under different assumptions about customer preferences and firm cost structure, as well as the potential loss of efficiency caused by pricing with incomplete information about consumer reservation values. Our analysis suggests that customized bundling enhances sellers’ profits and enhances welfare when consumers do not place positive values on all goods, and that this consumer characteristic is much more important than the shape of the valuation distribution in determining the optimal pricing scheme. We also find that customized bundling outperforms both pure bundling and individual sale in the presence of incomplete information, and that customized bundling still outperforms other simpler pricing schemes even when exact consumer valuations are not known ex ante.

Notes:

Full text provided by permission

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Keywords:

online product reviews, self selection, consumer heterogeneity, herding

Abstract:

Online product reviews may be subject to self-selection biases that impact consumer purchase behavior, online ratings' time series, and consumer surplus. This occurs if early buyers hold different preferences than do later consumers regarding the quality of a given product. Readers of early product reviews may not successfully correct for these preference differences when interpreting ratings and making purchases. In this study, we develop a model that examines how idiosyncratic preferences of early buyers can affect long-term consumer purchase behavior as well as the social welfare created by review systems. Our model provides an explanation for the structure of product ratings over time, which we empirically test using online book reviews posted on Amazon.com. Our analysis suggests that firms could potentially benefit from altering their marketing strategies, such as pricing, advertising, or product design, to encourage consumers likely to yield positive reports to self-select into the market early and generate positive word of mouth for new products. On the other hand, self-selection bias, if not corrected, decreases consumer surplus.

Notes:

Version is pre-publication (prior to journal copy editing and typesetting). See journal for final version.

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• Office hours for the new semester will be Monday 3-4:30 and Tuesday 2-3:30.  If these don't work, please e-mail me for an appointment.
• OPIM960 will be meeting at 4:30 - 7:30 in the OPIM conference room (unless otherwise noted).  If you are participating in the class, but not registered you need to send me an e-mail to get access to the class webcafe.  Next meeting will be on Jan 28th the reading guide will be available by the end of the day on January 23 (please do this before class).

Abstract:

We examine IT contracting in one particular segment of the IT outsourcing market - the market for large scale packaged software implementations such as Enterprise Resource Planning (ERP) systems. Using a small sample of actual outsourcing contracts in several industries and a review of the relevant outsourcing literature, we determined the common provisions and structural characteristics of these contracts. We then used this description to develop an analytical model of IT outsourcing, using principal agent techniques. Our model captures key characteristics of these IT contracts including a multi-stage project structure, vendor learning, probabilistic binary outcomes (success/failure), use of incentive contracting, and implementation risks. In addition to deriving the optimal IT contract; we specifically focus on how vendor learning affects the optimal structure of the contract. In particular, we find that with rapid vendor learning at the early stage of the contract, it is often more efficient to use a multistage contracting procedure, even if it is not technically required, as this enables stronger incentives to be given to the vendor and creates greater profit and surplus.

Notes:

A full version of this paper is now available. See 34. Wu, D.J., Ding, Ming, and Lorin M. Hitt (April 2007). “IT Implementation Contract Design: Analytical and Experiemental Investigation of IT Payoff, Learning and Contract Structure,” in review.

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Keywords:

IT productivity, product variety, trademark, competitive advantage

Abstract:

This paper examines the relationship between information technology and product variety. Consistent with prior theoretical work, we argue that IT and product variety are complements. IT innovations such as computer-aided design and flexible manufacturing technology have enabled firms to offer greater product variety at a reasonable cost. Similarly, firms seeking to offer greater variety can facilitate this strategy through IT investment. Using a novel approach to measuring product variety at the firm level through trademark counts we examine the relationship between IT and variety in four ways: direct correlations, IT and variety demand estimation, productivity analyses, and market value analyses. We utilize an 11-year panel data set of information technology capital stock, trademark holdings, and other measures for 512 Fortune 1000 firms to test our hypotheses. Overall, we find that IT is found to be associated with increased product variety, and that increased product variety increases demand for IT investment. Complementarities between IT and product variety are not significant in the productivity analysis but appear strongly when we consider their influence on firm valuation.

Notes:

Runner-up, best paper award.

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Keywords:

Spillovers, knowledge flows, organizational complements, information technology

Abstract:

Intra-industry spillovers from information technology investments have been cited as a potentially important driver of productivity growth. Using firm-level data to measure the sizes of these spillovers, however, can be challenging because of biases caused by 1) measurement error and 2) the difficulty in separating the effects of spillovers from the effects of shared technological opportunity. In this analysis, we employ two separate approaches to develop more accurate estimates of the contributions of information technology driven spillovers to economic output. First, we use an instrumental variables approach to correct biases caused by measurement errors in IT capital, and second, we use technological variation from establishment level data to create richer models of knowledge spillover pools that are less vulnerable to the econometric problems identified above. We report estimates from both of these approaches and compare them with estimates from methods relying on conventional firm-level models of spillover. Our results suggest that existing estimates of within-industry spillovers from information technology investments may be considerably overstated. The estimates produced by our different approaches are internally consistent, and suggest that the contribution of within-industry information technology spillovers may actually be smaller than previously reported.

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Abstract:

The fabrication and performance of p-channel germanium MOSFET's having a nitrided native oxide gate insulator are reported. A self-aligned dummy-gate process suitable for circuit integration is utilized. Common-source characteristics exhibit no "looping" and indicate a peak room temprature channel mobility of 770c22/Vs. These results provide further evidence that a high-performance germanium CMOS technology is possible.

Notes:

Fulltext not available. See journal for a copy.

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Keywords:

computers; productivity; information technology; production function estimation; services; manufacturing

Abstract:

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 early work. Specifically, in this short paper we: 1) control for individual firm differences in productivity by employing a "fixed effects" specification, 2) consider the more flexible translog specification instead of only the Cobb-Douglas specification, and 3) allow all parameters to vary between 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 and marginal product are little-changed when the less restrictive translog production function is employed. Finally, we find only limited eficence 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 th emarginal product of IT is at least as high in firms that did not grow during the 1998-1992 sample period as it is in firms that grew.

Notes:

Full text not available (and this journal does not appear in the usual fulltext indices).

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Keywords:

IT productivity, business profitability,IS investment, economic theory, consumer surplus, computers

Abstract:

The business value of information technology (IT) has been debated for a number of years. While some authors have attributed large productivity improvements and substantial consumer benefits to IT, others report that IT has not had any bottom line impact on business profitability. This paper focuses on the fact that while productivity, consumer value, and business profitability are related, they are ultimately separate questions. Accordingly, the empirical results on IT value depend heavily on which question is being addressed and what data are being used. Applying methods based on economic theory, we are able to define and examine the relevant hypotheses for each of these three questions, using recent firm-level data on IT spending by 370 large firms. Our findings indicate that IT has increased productivity and created substantial value for consumers. However, we do not find evidence that these benefits have resulted in supranormal business profitability. We conclude that while modeling techniques need to be improved, these results are collectively consistent with economic theory. Thus, there is no inherent contradiction between increased productivity, increased consumer value, and unchanged business profitability.

Full Text:

Full text is available from the MIS Quarterly site at: http://www.misq.org/archivist/bestpaper/hitt.pdf

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