Informal Economies

Read More, Make More: Evidence from MIT and BU

Access to information diffusing in a given network may be a much stronger predictor of productivity than traditional human capital variables such as education or industry experience.

Access to information diffusing in a given network may be a much stronger predictor of productivity than traditional human capital variables such as education or industry experience.

I’m betting heavily on the value of information. From everything I have seen in the field and every interaction I have witnessed, I know that not much gets done without timely access to information. And virtually nothing gets done well. This is true for both societal progress in general and for specific organizations. Collective, shared information is the very bedrock of progress. Without it, countless resources would be wasted as each organization, and ultimately each society, continuously reinvented every wheel. Without the very real benefits of collective ideas and progress, we are stuck. We know this, and yet the exact value of collective knowledge eludes us. It seems almost intangible; how do you put a number on it? Luckily, researchers in Boston are trying to do just that. Their results might surprise you.

In a study titled Productivity Effects of Information Diffusion in Networks, Sinan Aral, Eric Brynjolfsson, and Marshall W. Van Alsyne asked: Do social networks impact information dispersion and does better access to information predict an individual’s ability to complete projects or generate revenue? Their answer was a resounding yes on both counts.

How did they go about answering these complex questions? First they took stock of all the relationships in a medium sized recruiting firm. Then they looked at how news spread through email at the firm over a ten-month period. They took note of two different types of information – event-related and discussion-related – and discovered that these separate types of information diffuse differently. The dispersion of event-related information was guided by network factors and demographics while discussion-related information also depended on social ties and functional relationships.

Though the information tracked way pushed through the company in different ways, both types of information were important in terms of an employees’ ability to complete projects and generate revenue. Each additional ten words seen were associated with an additional 1% of one project complete. Greater mean rank (i.e. the rank order in the news chain among co-workers) and longer average times to receive words (how long it took to hear about it) were associated with fewer projects completed holding constant traditional demographic and human capital variables.

Amazingly, each additional “word seen” was associated with about $70 of additional revenue generated (that’s 3000 Rs per work over a ten-month period).

What does this mean from a development perspective? Access to information diffusing in a given network may be a much stronger predictor of productivity than traditional human capital variables such as education or industry experience. Perhaps the most important thing we can do to help people lift themselves out of poverty is simply to involve them in our information-rich networks.

 

 

About the author

Tara Thiagarajan

Tara Thiagarajan

Tara is Chairman and Managing Director of Madura Microfinance.

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