Product Differentiation and the Use of Information Technology: New Evidence from the Trucking Industry

Since the mid-1980s many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in the service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time-performance vs. lowest rate carrier, are precisely what differentiates a trucking firm's service. This paper uses cross-sectional data to show that the use of increasingly sophisticated IT by trucking firms varies depending upon marketing objectives. Our empirical results imply that in order to measure the impact of IT on productivity it is crucial to account for how the firm differentiates its product. We conclude that the productivity paradox can be alleviated if measures of output incorporate firms' marketing objectives.

Precautionary Savings-A Panel Study

Theoretical literature shows that income uncertainty boosts saving, yet empirical work is incomplete. I test for the precautionary motive for saving using panel data. Knowing this motive's size is important for gauging the responsiveness of saving to government programs that reduce uncertainty, and for comparison to other motives, such as bequests. Most empirical studies of precautionary saving use either aggregate time-series or cross-sectional data, which cannot capture the effects of individual income uncertainty. I derive measures of total, permanent, and transitory income uncertainty from panel data - the National Longitudinal Survey - and find a strong precautionary motive. A doubling of uncertainty increases the ratio of wealth to permanent income by 29%. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Portfolio Allocation of Precautionary Assets: Panel Evidence for the United States

Economic theory predicts that earnings uncertainty increases precautionary saving and causes households to include relatively liquid assets in their portfolios. Risk avoidance and the demand for liquidity cause these portfolio choices. Studies investigating United States evidence of precautionary portfolio allocation are nonexistent. With panel data, our results confirm the precautionary motive, and indicate that the desire to moderate total exposure to risk (temperance) and the demand for liquidity each affect the household's portfolio. Both permanent and transitory earnings uncertainty boost total wealth, and this precautionary wealth tends to be invested in safe, liquid assets. These results are particularly pronounced for people facing borrowing constraints. Such behavior is consistent with consumer utility functions that exhibit decreasing absolute risk aversion and decreasing strength of the precautionary motive (prudence). Our findings are important because both unemployment compensation and income taxes provide insurance that reduce earnings uncertainty. As a result, precautionary saving is both curtailed and reallocated. These policies could have large effects on capital formation and interest rates, through changes in the composition of household asset demand.Precautionary Motive, Portfolio Allocation, Panel Data, Uncertainty, Prudence, Temperance, Liquidity Constraints

Product Differentiation and the Use of Information Technology: New Evidence from the Trucking Industry

Since the mid-1980s many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in the service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time-performance vs. lowest rate carrier, are precisely what differentiates a trucking firm's service. This paper uses cross-sectional data to show that the use of increasingly sophisticated IT by trucking firms varies depending upon marketing objectives. Our empirical results imply that in order to measure the impact of IT on productivity it is crucial to account for how the firm differentiates its product. We conclude that the productivity paradox can be alleviated if measures of output incorporate firms' marketing objectives.Information Technology, Product Differentiation, Marketing Objectives, Trucking Industry, Productivity

Marketing strategy and the use of information technology: New evidence from the trucking industry

Since the mid-1980s, many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in a service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time performance vs. lowest-rate carrier, is precisely what differentiates a trucking firm's service. This paper uses cross-sectional data to show that the use of increasingly sophisticated IT by trucking firms varies depending upon marketing objectives. Our empirical results imply that, in order to measure the impact of IT on productivity, it is crucial to account for how the firm differentiates its product. We conclude that the productivity paradox can be alleviated if measures of output incorporate firms' marketing objectives.

Uncertainty in Executive Compensation and Capital Investment: A Panel Study

We test whether uncertainty in the CEO's compensation influences the firm's investment decisions, using panel compensation data and cross-sectional invetsment data. Given the prospect of bearing extra risk, a rational agent reacts to minimize the impact of such risk. We provide evidence that CEOs with high earnings uncertainty invest less. As expected, the negative impact of permanent earnings uncertainty on firm investment is larger than that of transitory earnings uncertainty. The results are robust to several alternative specifications and lend support to Stulz' over-investment hypothesis. Knowing how investment is tied to the CEO's earnings uncertainty helps in building the correct compensation package.executive compensation, capital investment, uncertainty

Product Differentiation and the Use of Information Technology: New Evidence from the Trucking Industry," mimeo

Institute’s third annual conference at Atlantic City for many helpful comments. Research assistance wa