Can stimulating demand drive costs down? World War II as a natural experiment

Lafond, Francois and Greenwald, Diana and Farmer, J. Doyne (2020): Can stimulating demand drive costs down? World War II as a natural experiment.

Abstract

For many products, increases in cumulative production are associated with de- creasing unit costs. However, a serious problem of reverse causality (lower prices leading to increasing demand) makes it difficult to use this relationship for pol- icy. We study World War II, during which the demand for military products was largely exogenous, and the correlation between production, cumulative produc- tion and an exogenous time trend was limited. Our results indicate that decreases in cost can be attributed roughly equally to the growth of experience and to an exogenous time trend.

• Item Type: MPRA Paper
• Language: English
• Keywords: innovation policy; learning curve; natural experiment; World War II.
• Subjects: N - Economic History > N6 - Manufacturing and Construction > N62 - U.S. ; Canada: 1913-; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy

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