Learning by Doing with Constrained Growth Rates and Application to Energy Technology

Learning by doing attributes cost reductions of a technology to cumulative investment and thus experience. This paper argues that the additional dimension of investment volume growth rate has to be considered. This growth rate has historically been limited in most sectors, thus allowing for feedback in the learning process. When market growth is below the ‘optimal’ rate, the marginal value of additional investment could be a multiple of the direct learning benefit. Analytic and numeric models quantify the impact — emphasising the need for tailored technology policy in addition to carbon pricing. Implications for the modelling of endogenous technological change are discussed.