Estimates of Learning by Doing in the Manufacture Of Electric Power Gas Turbines

Abstract

This paper investigates LBO in prices and heat rates of gas turbines. We test whether the LBO spills over from production experience with smaller units. Progress ratios range from 0.83 to 0.95 for price and 0.89 to 0.94 for the heat rate. We do not find that learning spills over from the smaller size class. Since lower heat rates have an upward effect on price, the two learning effects offset one another so that the reduced form of experience on price is not significantly different from zero. The net result is that LBO has a large effect, but does not result in lower prices per se. The effects of cumulative experience are simultaneous increases in the performance, which tends to increase the value hence the price, and reductions in production costs, which allow the better unit to be sold for roughly the same price as the newer unit.