Keywords
ict, general equilibrium, income distribution, simulation
Start Date
1-7-2008 12:00 AM
Abstract
The special feature of the innovation in the information and communicationtechnologies (ICTs) implies the improvement in the quality of consumption of goods andservices including leisure hours, as well as the modification in the production process. Thetraditional analysis has emphasized solely the modification in the production process. Thispaper incorporates this special feature in analysing the relation between the innovation andthe income distribution. It has been argued that the innovation of ICTs expands theunfairness of income distribution. In the traditional expression, this may be rephrased thatthe wealthy capitalist class becomes relatively better off, while the poor working classbecomes relatively worse off. Assuming three social classes: the entrepreneurs, thecapitalists, and the workers, this paper examines how the relative shares of these classes inthe national income changes due to the innovation of ICTs. For three types of productionfunctions: Cobb-Douglas type, CES type with negative substitution, and CES type withpositive substitution, this paper conducts the comparative statics analysis by actuallycomputing general equilibrium prices for the specified different parameters of ICTs in theproduction function. This paper derives the completely opposite conclusions between theCES type with negative substitution, and the one with positive substitution. Thus, it isshown by these simulations that theoretically, no definite relation holds between theinnovation of ICTs and income distribution (or utility level). In order to derive the definiterelation, one must examine what type of production function the economy has.
Information and Communication Technologies and the Income Distribution: A General Equilibrium Simulation
The special feature of the innovation in the information and communicationtechnologies (ICTs) implies the improvement in the quality of consumption of goods andservices including leisure hours, as well as the modification in the production process. Thetraditional analysis has emphasized solely the modification in the production process. Thispaper incorporates this special feature in analysing the relation between the innovation andthe income distribution. It has been argued that the innovation of ICTs expands theunfairness of income distribution. In the traditional expression, this may be rephrased thatthe wealthy capitalist class becomes relatively better off, while the poor working classbecomes relatively worse off. Assuming three social classes: the entrepreneurs, thecapitalists, and the workers, this paper examines how the relative shares of these classes inthe national income changes due to the innovation of ICTs. For three types of productionfunctions: Cobb-Douglas type, CES type with negative substitution, and CES type withpositive substitution, this paper conducts the comparative statics analysis by actuallycomputing general equilibrium prices for the specified different parameters of ICTs in theproduction function. This paper derives the completely opposite conclusions between theCES type with negative substitution, and the one with positive substitution. Thus, it isshown by these simulations that theoretically, no definite relation holds between theinnovation of ICTs and income distribution (or utility level). In order to derive the definiterelation, one must examine what type of production function the economy has.
