Class Two - Learning by Doing:
Class 2 overview: Hilary Term Week 7. One hour lecture, MSc. Dev. room.
While Lecture 2 focused on the general concept of learning by doing and within firm learning-by-doing dynamics, here we focus on spillovers. Mainly, across firms–and beyond.
Within firm versus across firm LBD: empirical evidence.
I think the within firm existence of LBD seems plausible. Dare I say, it seems that we can accept that they exist in a number of contexts. Of course, recall from Lecture 2 that it is easy to conflate internal scale economies for other omitted variables. Nevertheless, decades of evidence indicates that the within firm learning likely exists. The source of internal economies of scale–be they organisational or embodied in labour–is another matter.
Spillovers across firms are, in my opinion, less clear to estimate. To what extent do these spillovers exists?
Thompson’s review article (Handbook of The Economics of Innovation, 2010) makes an interesting point, one that intuitively rings true to me. Mainly, a judicious reading of the empirical literature of LBD hints that there is an upward bias in estimates of internal LBD; on the flip side, our estimates of external LBD dynamics are likely under-estimates. Though impressionistic, this rings true to me.
Thornton and Thompson (2001), as well as a number of papers, also suggest that we should think about what the boundaries of spillovers may be. How we define the boundaries of across-firm spillovers is largely up to us, the researchers. Coincidentally, in many studies of the same industry–for example wind turbine green energy–the estimated LBD spillovers are sensitive to geographic scope.
I think we have found realms where there is evidence of external LBD. Nevertheless, they seems smaller and more elusive than internal scale economies we have observed over the past decades.
What does this mean about the case of industrial interventions, however? I discuss this a bit in Lecture 3.
Revisiting Liberty Yards: Thornton and Thompson (2001).
Thornton and Thompson (2001) once again turn to the Liberty Ship example, but this time consider various forms of LBD forces: within yard, across yard, and across product line (with respect to both). It’s a nice exercise, though a bit of a tricky one, as they are performing a nonparametric estimation of learning curves here.
Given we’re estimating nonlinear mappings between experience and productivity, we get into a bit of bind. What is the right number to interpret? After all, if we have a nonlinear mapping between experience (one one hand) and cost reduction (on the other), what is the marginal effect to consider?
Thornton and Thompson (2001) consider a number of interpretations of these results. Among them, they try to calculate an elasticity in the Spence’s (1981, 1984) seminal theoretical work on the topic. They conclude that there are significant internal and external LBD dynamics at work in this example. But it seems that internal economies are likely the more important dynamic at work.
This results lead the authors to conclude there is likely not a market failure. However, in the lectures I point to a number of key reasons why I am unsure about this interpretation.
I think the Thornton and Thompson (2001) is nice. Not because I love boats. But because you can see how difficult the empirical problem is—and the potential interaction of these effects.
More holistic externalities.
Yet, consider the LBD forces in endogenous growth models. More specifically, consider Lucas’ Making a Miracle (1993) paper on endogenous growth with learning-by-doing dynamics. The spillovers in such models seem much broader than the nitty gritty dynamics that are studied in micro econometric studies of LBD. With this in mind, the latter half of the lecture considers two key readings by Mitrunen (2019) and Hanlon (2020).
Bibliography.
Davis, L. W. (2012). Prospects for Nuclear Power. Journal of Economic Perspectives, 26(1), 49–66. https://doi.org/10.1257/jep.26.1.49
Dasgupta, P., & Stiglitz, J. (1988). Learning-by-Doing, Market Structure and Industrial and Trade Policies. Oxford Economic Papers, 40(2), 246–268. http://www.jstor.org/stable/2662972
Fudenberg, D., & Tirole, J. (1983). Learning-by-Doing and Market Performance. The Bell Journal of Economics, 14(2), 522. https://doi.org/10.2307/3003653
Hanlon, W. W. (2020). The Persistent Effect of Temporary Input Cost Advantages in Shipbuilding, 1850 to 1911. Journal of the European Economic Association, 18(6), 3173–3209. https://doi.org/10.1093/jeea/jvz067
Leahy, D., & Neary, J. P. (1999). Learning by Doing, Precommitment and Infant-Industry Promotion. The Review of Economic Studies, 66(2), 447–474. https://doi.org/10.1111/1467-937X.00094
Levitt, S. D., List, J. A., & Syverson, C. (2013). Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant. Journal of Political Economy, 121(4), 643–681. https://doi.org/10.1086/671137
Lucas, R. E. (1993). Making a Miracle. Econometrica, 61(2), 251–272. https://doi.org/10.2307/2951551
Mitrunen, M. (2019). War Reparations, Structural Change, and Intergenerational Mobility.
Thompson, P. (2001). How Much Did the Liberty Shipbuilders Learn? New Evidence for an Old Case Study. Journal of Political Economy, 109(1), 103–137. https://doi.org/10.1086/318605
Thompson, P. (2010). Chapter 10 - Learning by Doing. In B. H. Hall & I. Rosenberg (Eds.), Handbook of The Economics of Innovation, Vol. 1 (Vol. 1, pp. 429–476). North-Holland. https://doi.org/https://doi.org/10.
Thornton, R. A., & Thompson, P. (2001). Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding. American Economic Review, 91(5), 1350–1368. http://www.aeaweb.org/articles?id=10.1257/aer.91.5.1350
Spence, M. (1981). The Learning Curve and Competition. Bell Journal of Economics, 12(1), 49–70. https://econpapers.repec.org/RePEc:rje:bellje:v:12:y:1981:i:spring:p:49-70
Spence, M. (1984). Cost Reduction, Competition, and Industry Performance. Econometrica, 52(1), 101. https://doi.org/10.2307/1911463