Learning by Doing with Constrained Growth Rates:An Application to Energy Technology Policy

Learning by doing methodology attributes cost reductions of a technology to cumulative investment and experience. This paper argues that in addition market growth rates must also be considered. Historically growth rates have been limited in most sectors, thus allowing for feedback in the learning process. When market growth is below the ÔoptimalÕ rate, the marginal value of additional investment could be a multiple of the direct learning benefit. Analytic and numeric models quantify this impact Ð emphasizing the need for tailored technology policy in addition to carbon pricing. Implications for the modeling of endogenous technological change are discussed.