Learning by Doing

This section is based on work that was done for the October 2024 Markets & Society conference. See our paper ¹ for a more detailed treatment of the subject.

Observed Learning Rates

The cost of a product tends to fall as more is produced. The effect, identified by Wright ² in the context of aircraft, can be quantified and modeled. Cost reduction through production is an essential element of bringing a clean energy technology to commercial maturity. Following are observed learning rates for select technologies. The learning rate is the percent cost reduction that is observed for doubling cumulative production.

Learning rates for select technologies. Sources: Chen et al. ³, Goldie-Scot ⁴, Hax and Majluf ⁵, Reeves et al. ⁶, Samadi ⁷, Wright ².

Not all of the cost decline observed for a growing technology is necessarily a result of learning curves. Some of the decline may be the result of other technological improvements that would occur regardless of how much the technology is deployed ⁸.

Limitations to Learning

Measuring learning rates may be difficult, and for this reason, estimate of learning rates for similar technologies may vary widely ⁹. A major challenge is that authors account for exogeneous factors, such as the effect of subsidies or commodity prices, in different ways. The published literature on learning rates shows a survivorship bias, meaning that higher values are more likely to be published than lower values, skewing up observed learning rates.

When a relationship between cumulative production and unit price is found, the causality of that relationship is difficult to prove. Price reduction may be caused by exogeneous price declines or economies of scale, rather than by cumulative production ¹⁰. It may also be that cost declines are driving increased deployment, rather than the reverse ⁸. Some learning models, known as two-factor models, incorporate cumulative research in addition to cumulative production. These models tend to find lower learning rates for production and also that cumulative research shows a greater effect on price than cumulative production ¹¹.

The Wright learning model, that the cost of some production falls by a fixed percentage with every doubling of production, is a simple and widely used model, but there is evidence that for many products, learning rates fall as production increases ¹².

Learning curves are especially challenging from a policy perspective, since some learning is a purely private gain to the firm producing, in which case a subsidy is not justified, and some learning is a knowledge spillover that may merit subsidy ¹³.