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How predictable is technological progress?

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  • J. Doyne Farmer
  • Francois Lafond

Abstract

Recently it has become clear that many technologies follow a generalized version of Moore's law, i.e. costs tend to drop exponentially, at different rates that depend on the technology. Here we formulate Moore's law as a correlated geometric random walk with drift, and apply it to historical data on 53 technologies. We derive a closed form expression approximating the distribution of forecast errors as a function of time. Based on hind-casting experiments we show that this works well, making it possible to collapse the forecast errors for many different technologies at different time horizons onto the same universal distribution. This is valuable because it allows us to make forecasts for any given technology with a clear understanding of the quality of the forecasts. As a practical demonstration we make distributional forecasts at different time horizons for solar photovoltaic modules, and show how our method can be used to estimate the probability that a given technology will outperform another technology at a given point in the future.

Suggested Citation

  • J. Doyne Farmer & Francois Lafond, 2015. "How predictable is technological progress?," Papers 1502.05274, arXiv.org, revised Nov 2015.
  • Handle: RePEc:arx:papers:1502.05274
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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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