The Relationship between Unit Cost and Cumulative Quantity and the Evidence for Organizational Learning-by-Doing
The concept of a learning curve for individuals has been around since the beginning of the twentieth century. The idea that an analogous phenomenon might also apply at the level of the organization took longer to emerge, but it had begun to figure prominently in military procurement and scheduling at least a decade before Wright's (1936) classic paper providing evidence that the cost of producing an airframe declined as cumulative output increased. Wright (1936) was careful not to describe his empirical results as a learning curve. Of his three proposed explanations for the relationships he observed between cost and cumulative quantity produced, only one is unambiguously a source of organizational learning; the others are consistent with organizational learning but also with standard static economies of scale. It quickly became apparent that the notion of organizational learning as a by-product of accumulated experience has important consequences for firm strategy. The Boston Consulting Group (BCG) built its consulting business around the concept of what it branded the experience curve, asserting that cost reductions associated with cumulative output applied to all costs, were "consistently around 20-30% each time accumulated production is doubled, [and] this decline goes on in time without limit" (Henderson 1968). Today, the negative relationship between unit production costs and cumulative output is one of the best-documented empirical regularities in economics. Nonetheless, the thesis of this paper is that the conceptual transformation of the relationship between cost and cumulative production into an organizational learning curve with profound strategic implications has not been sufficiently supported with direct empirical evidence.
Volume (Year): 26 (2012)
Issue (Month): 3 (Summer)
|Contact details of provider:|| Web page: https://www.aeaweb.org/jep/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joshua D. Angrist & Alan B. Krueger, 2001.
"Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments,"
Journal of Economic Perspectives,
American Economic Association, vol. 15(4), pages 69-85, Fall.
- Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Working Papers 834, Princeton University, Department of Economics, Industrial Relations Section..
- Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," NBER Working Papers 8456, National Bureau of Economic Research, Inc.
- Steven Levitt & John List & Chad Syverson, 2012. "Toward an Understanding of Learning by Doing: Evidence from an Automobile Plant," Natural Field Experiments 00463, The Field Experiments Website.
- Young, Alwyn, 1993. "Invention and Bounded Learning by Doing," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 443-472, June.
- Mark Doms & Eric J. Bartelsman, 2000.
"Understanding Productivity: Lessons from Longitudinal Microdata,"
Journal of Economic Literature,
American Economic Association, vol. 38(3), pages 569-594, September.
- Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
- C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
- Steven D. Levitt & John A. List & Chad Syverson, 2012.
"Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant,"
NBER Working Papers
18017, National Bureau of Economic Research, Inc.
- Steven D. Levitt & John A. List & Chad Syverson, 2013. "Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant," Journal of Political Economy, University of Chicago Press, vol. 121(4), pages 643-681.
- Aidan Hollis, 2002. "Strategic Implications of Learning by Doing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(2), pages 157-174.
- Nelson, Richard R, 1981. "Research on Productivity Growth and Productivity Differences: Dead Ends and New Departures," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 1029-1064, September.
- Peter Thompson, 2001.
"How Much Did the Liberty Shipbuilders Learn? New Evidence for an Old Case Study,"
Journal of Political Economy,
University of Chicago Press, vol. 109(1), pages 103-137, February.
- Peter Thompson, 1997. "How Much Did the Liberty Shipbuilders Learn? New Evidence for an Old Case Study," Development and Comp Systems 9712001, EconWPA.
- Bessen, James, 2003. "Technology and Learning by Factory Workers: The Stretch-Out at Lowell, 1842," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 33-64, March.
- Sherwin Rosen, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, Oxford University Press, vol. 86(3), pages 366-382.
- Jovanovic, Boyan, 1979.
"Job Matching and the Theory of Turnover,"
Journal of Political Economy,
University of Chicago Press, vol. 87(5), pages 972-990, October.
- Drew Fudenberg & Jean Tirole, 1983. "Learning-by-Doing and Market Performance," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 522-530, Autumn.
- Clarke, Frank H & Darrough, Masako N & Heineke, John M, 1982. "Optimal Pricing Policy in the Presence of Experience Effects," The Journal of Business, University of Chicago Press, vol. 55(4), pages 517-530, October.
- Jeremy C. Stein, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 265-288.
- repec:fth:prinin:455 is not listed on IDEAS
- Gavin Sinclair & Steven Klepper & Wesley Cohen, 2000. "What's Experience Got to Do With It? Sources of Cost Reduction in a Large Specialty Chemicals Producer," Management Science, INFORMS, vol. 46(1), pages 28-45, January.
When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:203-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.