Information as a factor of production: Substitutability and productivity

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Abstract
This paper uses an econometric analysis to explore the technology associated with the use of information services in manufacturing industries. A study of the 1972 data for 51 manufacturing industries indicates that the assumption of constant unitary elasticity of substitution between capital and information is probably not appropriate. This causes one to doubt the appropriateness of the Cobb‐Douglas production function to model the relationship between inputs and value added in these industries. Using production functions more general than the Cobb‐Douglas, estimates of the elasticities of substitution between information and other inputs and of the marginal product of information are obtained. The estimates of the marginal product of information range from 2.3 to 3.7, and are consistent with the Hayes and Erickson conclusion that the firms in these industries underinvest in purchased information.

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