Introduction:
Professor Rajat Kathuria, ICRIER Director and Chief Economist, welcomed Dr. Hal Varian and the audience to the event. He highlighted that Hal Varian’s Microeconomics textbook has been widely influential in graduate education and translated into 22 languages globally.

Welcome and Context:
Nisha, an ICRIER colleague, thanked Dr. Varian for attending the event. Dr. Varian expressed his delight at being in India and that given India’s position as an IT powerhouse, it made sense for him to spend more time in India for research and work. Hal Varian’s textbook, “Microeconomics”, has been a benchmark for graduate education worldwide and has been translated into 22 languages.

ICRIER’s Research on IT Impact:
ICRIER has conducted research on the impacts of IT, internet, mobile, and their interrelationship with the economy since 2008. The reports have analyzed macro-level GDP impacts of IT and shown that broadband has not had the expected impact on the economy, while mobile has had a greater impact due to its scale. India’s mobile subscriber base is approaching a billion, reflecting the significant growth in the mobile sector.

Positive Impacts of the IT Sector:
Dr. Kathuria emphasized the need to focus on the positive impacts of the IT sector, which often get overlooked due to the attention on corruption and downsides. He highlighted the sector’s profound impact on people’s lives and argued that it should be recognized in public discourse. The sector has the potential to drive India’s development to the next level.

Challenges in India’s Telecom Sector:
Dr. Kathuria expressed concern about the negative atmosphere and controversies surrounding public decision-making in the telecom sector in India. He lamented the delays in the upcoming spectrum auctions, which have hindered the sector’s progress. He stressed the need for policy reforms and positive sentiment to unlock the full potential of the IT sector in India.

Conclusion:
Dr. Kathuria expressed gratitude to Dr. Varian for agreeing to visit ICRIER on short notice and thanked all attendees for their participation.

Combinatorial Innovation:
History showcases periods of innovation triggered by standardized parts. In the 19th century, mechanical parts led to inventions like the bicycle and automobile. In the 1920s, electrical and electronic components brought innovations like the radio and television. In the 1960s and 70s, the integrated circuit revolutionized technology.

Internet Era Components:
The Internet era presents standardized software components and protocols. Examples include Linux, Apache, MySQL, and Python (LAMP). Thousands of innovators build applications using these components.

Cloud Computing Impact:
Cloud computing’s widespread availability supports internet innovation. Standardized software and hardware components foster rapid innovation.

Comparison to Previous Eras:
The pace of internet innovation outstrips earlier examples. In the past, interoperability of mechanical parts took a century. Internet innovation has achieved rapid progress in just 20 years.

Global Software Collaboration:
Standardized software components enable duplication and parallel work. This global collaboration accelerates innovation.

Data Extraction and Analysis:
The proliferation of computers in economic transactions has enabled the capture and analysis of transaction-based information, leading to the concept of big data. This vast amount of data requires specialized databases, hardware, and software systems to store and process it effectively.

Personalization and Customization:
Computers in transactions allow for personalization and customization of services and products based on individual preferences and interactions.

Continuous Experimentation:
Computers facilitate experimentation and testing of different treatments and interactions within transactions, enabling ongoing improvement of services offered by the system.

New Forms of Contracts:
Computer-mediated transactions give rise to new types of contracts that may differ from traditional paper-based agreements.

The Magnitude of Data:
To illustrate the scale of data involved, Google processes trillions of URLs, crawls billions of pages daily, and handles hundreds of billions of search queries monthly.

New Computing Technologies:
Vast amounts of data now commonly exceed storage capacity of a single or a few machines. Innovative systems process queries on massive datasets with trillions of records in seconds.

Public Availability:
Google’s published research and open-source tools enable widespread access to data processing technology, fostering a data science revolution.

Cloud Computing Transformation:
Deploying and managing data centers for analysis has transitioned from a fixed cost to a scalable, variable cost through cloud computing services. Cloud solutions provide cost-effective access to data analysis tools for individuals, students, universities, and startups.

Lower Entry Barriers:
Reduced entry costs have spurred a surge in startups and individuals entering the data analysis sector.

Open Source Data Science Tools:
Open-source data tools, such as the R language, have revolutionized statistical analysis.

Collaborative Web Community:
A vibrant online community offers support, examples, communication, and illustrative materials, fostering rapid growth in data science and analytics.

Valuable Applications of Big Data:
Netflix Recommendation System Improvement: Netflix held a contest offering a million-dollar prize to improve their recommendation system. The winning team blended 800 statistical models to achieve this goal. Subsequently, a startup in Australia identified the potential of arranging similar contests, leading to the establishment of Kaggle. Kaggle’s Global Data Science Competitions: Kaggle conducts competitions with 114,000 global data scientists. Notable examples include: Heritage Health Prize ($3 million): Predicting hospital readmissions within six months. GE Flight Optimization Prize ($250,000): Optimizing flight patterns for airlines. Belkin Energy Disaggregation Challenge: Predicting electricity consumption of appliances in a household. Michael J. Fox Foundation Prize: Predicting early onset of Parkinson’s disease using mobile phone accelerometer data. Personalization and Customization: Customized Searches: Google personalizes search results based on location and context, leading to more informed searching and shopping. Personalized Ads: Directing ads to relevant individuals based on interests and preferences saves attention and money for both users and businesses. Google Now: Provides relevant information such as timely reminders and flight delays without explicit user queries. Opt-In Nature of Google Now: Google Now’s services are completely opt-in, allowing users to decide whether to use them.

Correlations vs. Causation:
Big data can uncover correlations but not necessarily causation. Example: More police in areas with higher crime rates does not mean police cause crime.

Randomized Experiments:
The gold standard for determining causality is a randomized controlled experiment. Example: Google runs 10,000 experiments annually to test the effectiveness of search and advertising features.

Experimental Infrastructure:
Google has a dedicated infrastructure for running experiments. Experiments can be conducted at the query level, cookie level, username level, or geographic area. Users are often unknowingly part of multiple experiments simultaneously.

User Interface Experiments:
Google runs approximately 1,000 experiments simultaneously to optimize various elements of the user interface, such as ad background colors, font styles, and text formatting. These subtle changes can significantly impact user behavior, and experimentation is the most effective way to determine optimal design choices.

Ranking Experiments:
Google tests new or improved search algorithms by offering them to a subset of users while comparing their performance to the existing algorithm. This experimentation helps identify superior algorithms that enhance search results quality.

Advertiser and Publisher Experiments:
Google provides advertisers and publishers with an experimental infrastructure to optimize their campaigns and web pages. Advertisers can test different ad wordings to determine the most effective ones, while publishers can optimize the display of different web pages to maximize engagement.

Continuous Improvement:
Experimentation is not limited to production processes but also extends to consumption processes, such as information consumption and flow within an organization. This enables continuous improvement of the user experience and the efficiency of information dissemination.

The Benefits of Monitoring in Contracts:
Increased monitoring in contracts leads to more precise and verifiable agreements.

Examples of Computer-Mediated Monitoring:
Advertising: Pay-per-click models allow advertisers to pay only for those who visit their website. Automobile Financing: Computer monitoring devices in cars enable repossession if payments are not made on time. Insurance: Vehicular monitoring systems can provide preferred insurance rates based on safe driving behavior.

Premise: Crowdsourced Data Collection:
Premise uses mobile phones to collect authoritative data, such as prices and inventory levels, through crowdsourced information gathering.

Historical Impact of Computer Monitoring:
Cash registers, invented in 1883, provided a way to monitor transactions, enabling businesses to expand and employ strangers. Credit rating for mortgages involves collecting and verifying financial information to manage risk.

Innovative Startups Using Contractual Innovations:
Uber: Uses computer-mediated monitoring to ensure quality service and verify transactions. Airbnb: Leverages a review system and computer monitoring to build trust between hosts and guests.

Conclusion:
Computer-mediated transactions enable monitoring and contract innovations that were previously infeasible, such as pay-per-click advertising, repossession devices in cars, and crowdsourced data collection. These innovations have a significant impact on productivity and efficiency in various industries.

Microscopic Multinationals:
Small businesses are now able to operate across borders, becoming “micromultinationals.” This is due to affordable computer and communication capabilities, typically only accessible to large multinationals before. Tools like Skype, Google Hangouts, Docs, Wikis, and email facilitate global communication.

Global Presence with Remote Teams:
Example: Friend with a company having employees in San Francisco, Spain, and the Czech Republic. Another example: Indian company called SlideShare with staff in San Francisco and New Delhi, working 24/7.

Advantages for Micromultinationals:
Faster product development due to round-the-clock collaboration. Access to global talent and increased flexibility. Reduced operational costs compared to traditional multinationals.

Ubiquity and Impact:
Micromultinationals are becoming increasingly prevalent, yet often go unnoticed due to their size. They challenge the traditional perception of global business, which was dominated by large corporations.

Conclusion:
Computer-mediated transactions have revolutionized global business, enabling new forms of economic transactions and increasing accessibility to resources for small businesses. The result is a more global, data-driven, and promising economic landscape for individuals and companies worldwide.

The Essence of Professor Varian’s Presentation:
Combinatorial innovation involves combining diverse elements to generate new ideas and applications, paralleling interchangeable parts and interoperability. Information-based goods, unlike physical goods, facilitate rapid innovation and ubiquitous computer-mediated transactions. Data extraction, storage, communication, and processing are shaping policy design and business strategies.

Implications for Economic Transformation:
The organization of work and firms undergoes significant changes, comparable to the shifts brought about by the steam engine and electricity. New business models and mechanisms emerge, even challenging prevailing policy prescriptions and business practices. Industries’ structure and conduct are influenced, impacting productivity across sectors and the economy. Labor markets and returns to skills are affected, requiring innovative approaches to skill management. The role of intellectual property is evolving in this new information economics paradigm.

Examples from India:
NASSCOM represents India’s IT industry and is at the forefront of these technological transformations. The attention economy, where businesses compete for consumers’ attention, is a key concept in the IT industry. The transition to ubiquitous computer-mediated transactions, even in developing countries like India, is rapidly changing business practices. India’s financial inclusion initiatives can benefit from the insights provided by information economics. The implications of information technology extend beyond the IT industry, influencing global value chains and manufacturing practices.

New Paradigm of Knowledge Creation and Sharing:
The traditional approach of knowledge creation and guarding has shifted towards open sharing and collaboration. Knowledge sharing is facilitated by technology and generates social and private benefits. Misuse of shared knowledge is a concern but requires careful consideration.

Changing Competition and Regulation Paradigms:
Regulation and competition need to be rethought in light of technological advancements. Human-machine interfaces play a critical role in the new digital landscape.

Policy Implications for India:
Scope for structural transformation of the economy: Information economics and global value chains should guide policy decisions. Avoid repetitive national manufacturing policies that lack effectiveness. Missing middle in the economy: IT and information economics can address the gap between large corporations and small enterprises. Policies should consider these new dynamics.

Employment Prospects and Challenges:
Productivity gains through technology may lead to job losses or generation of new economic activities. The debate on employment creation remains ongoing, especially in the context of rapidly growing sectors like IT. Multi-brand retail and FDI policies are linked to productivity gains and technology adoption.

Impact on Governance, Accountability, and the News Business:
Governance and accountability are affected by the digital economy. Innovation is another critical aspect that requires attention. The news business has witnessed a decline in traditional media with the rise of online news consumption.

Indian IT Industry as an Example:
Small enterprises and startups contribute significantly to the IT sector in India. “Micro-multinationals” emerge as companies with operations in multiple countries to enhance learning and technology improvement. Changing talent demands in the industry due to technological advancements is a crucial consideration.