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

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  • Lafond, François
  • Farmer, J. Doyne
  • Greenwald, Diana

Abstract

For many products, increases in cumulative production are associated with decreasing unit costs. However, a serious problem of reverse causality (lower prices leading to increasing demand) makes it difficult to use this relationship for policy. We study World War II, during which the demand for military products was largely exogenous, and the correlation between production, cumulative production 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.

Suggested Citation

  • Lafond, François & Farmer, J. Doyne & Greenwald, Diana, 2020. "Can stimulating demand drive costs down? World War II as a natural experiment," INET Oxford Working Papers 2020-02, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
  • Handle: RePEc:amz:wpaper:2020-02
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    3. Anuraag Singh & Giorgio Triulzi & Christopher L. Magee, 2020. "Technological improvement rate estimates for all technologies: Use of patent data and an extended domain description," Papers 2004.13919, arXiv.org.
    4. Torsten Heinrich & Jangho Yang, 2022. "Innovation in times of Covid-19," Papers 2212.14159, arXiv.org.
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    More about this item

    Keywords

    innovation policy; learning curve; natural experiment; World War II;
    All these keywords.

    JEL classification:

    • N62 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: 1913-
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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