Returns to Scale and the Role of Computer Software


Computers have changed the way firms produce. For example, information technology and software have affected firm cost structures, by introducing different fixed and marginal costs. This can affect scale economies. We measure returns to scale with a large dataset covering firms of all sizes, and across all sectors in the UK economy. We document the relationship of software to the changing patterns of scale economies. A theory is developed which highlights how technology endogenously affects returns to scale, and thus allows firms to grow faster.

Currently a Working Paper