The "prosumer" and the Production Funtion

I've had an interesting idea today. Reading Wikinomics has made me realise how important the consumer, or the "prosumer" to use the authors' term, has become for the innovative potential of many firms. As the internet makes social networking easier, more and more consumers are starting to contribute to the creation of products themselves. In effect, this "user-generated content" improves the quality of the product, all at minimal cost to the company involved (unless they are trying to protect their IP of course).

Now, when you think about it, this is really the same as saying the human capital element in the production function has become far more important. Companies' can now access this vast pool of intellectual capital (their consumers) in order to improve their product offerings. In economics, the production function is typically written in the form

Y = A.F(L, K, H) where A = technology, L = labour input, K = capital input, H = human capital input.

At the individual firm level, the argument would suggest that the effect of H on Y is greater the more the consumer is a prosumer - i.e. integrated into the production process. Interestingly, at the economy-wide level, it could also be argued that H is to some extent determined by A - i.e. as the technology improves, H becomes more important because the technology (internet, computer power, bandwidth etc.) itself determines the extent to which this type of business environment is possible.

just a thought...