Events at CERGE-EI

Prof. Aloysius Siow

The University of Toronto, Canada
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Authors: Yao Luo and Aloysius Siow

Abstract:  The objective of this project is to propose a particular but widespread digital innovation which is qualitatively different from innovations from the industrial revolution. We argue that current national productivity and labor market statistics, such as TFP and the CPS (for labor market activity), do not capture the full social gains from this digital innovation.

The digital innovation which we focus on is the online search engine. The online search engine facilitates easier search and matching between heterogeneous agents to want to match with each other in order to trade, interact, and exchange information. Before these search engines, small scale producers who want to match with idiosyncratic demanders for their products would find it too costly to search for these demanders. The online search engine facilitates the matching of these small idiosyncratic producers with their consumers.

Our analytic framework is an equilibrium monopolistic competitive model with heterogenous qualities and varieties. We model the arrival of online search engines as reducing the cost to a consumer of sampling more varieties before making a purchase decision.

We provide evidence that online travel search engines reduced the demand for human travel agents. Most Airbnb hosts locate in locations without hotels or motels. Until very recently, official government statistics do not capture the existence of these Airbnb hosts.
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