<b>Research Commentary</b>—Using Income Accounting as the Theoretical Basis for Measuring IT Productivity
Authors: Kundisch, Dennis O.; Mittal, Neeraj; Nault, Barrie R.
Journal: Information Systems Research (2014)
<jats:p> We use the under-recognized income accounting identity to provide an important theoretical basis for using the Cobb-Douglas production function in IT productivity analyses. Within the income accounting identity we partition capital into non-IT and IT capital and analytically derive an accounting identity (AI)-based Cobb-Douglas form that both nests the three-input Cobb-Douglas and provides additional terms based on wage rates and rates of return to non-IT and IT capital. To empirically confirm the theoretical derivation, we use a specially constructed data set from a subset of the U.S. manufacturing industry that involve elaborate calculations of rates of return—a data set that is infeasible to obtain for most productivity studies—to estimate the standard Cobb-Douglas and our AI-based form. We find that estimates from our AI-based form correspond with those of the Cobb-Douglas, and our AI-based form has significantly greater explanatory power. In addition, empirical estimation of both forms is relatively robust to the assumption of intertemporally stable input shares required to derive the AI-based form, although there may be limits. Thus, in the context of future researc…