TY  - JOUR
AU  - Nordhaus,William D.
TI  - The Perils of the Learning Model For Modeling Endogenous Technological Change
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14638
PY  - 2009
Y2  - January 2009
UR  - http://www.nber.org/papers/w14638
L1  - http://www.nber.org/papers/w14638.pdf
N1  - Author contact info:
William D. Nordhaus
Yale University, Department of Economics
28 Hillhouse Avenue
Box 208264
New Haven, CT  06520-8264
Tel: 203/432-3598
Fax: 203/432-5779
E-Mail: william.nordhaus@yale.edu
AB  - Learning or experience curves are widely used to estimate cost functions in manufacturing modeling. They have recently been introduced in policy models of energy and global warming economics to make the process of technological change endogenous. It is not widely appreciated that this is a dangerous modeling strategy. The present note has three points. First, it shows that there is a fundamental statistical identification problem in trying to separate learning from exogenous technological change and that the estimated learning coefficient will generally be biased upwards. Second, we present two empirical tests that illustrate the potential bias in practice and show that learning parameters are not robust to alternative specifications. Finally, we show that an overestimate of the learning coefficient will provide incorrect estimates of the total marginal cost of output and will therefore bias optimization models to tilt toward technologies that are incorrectly specified as having high learning coefficients.
ER  -