Invention and Bounded Learning by Doing

Abstract

This paper presents a model of the interaction between invention and learning by doing. Learning depends upon invention in that learning by doing is viewed as the serendipitous exploration of the finite productive potential of invented technologies. At the same time, the profitability of costly invention is dependent upon learning in that costs of production depend upon the society's aggregate historical learning experience. The resulting model is a true hybrid. With small markets, the profitability of invention is low, and hence the rate of invention becomes the constraining factor in growth. With large markets, invention is very profitable and tends to pull ahead of the society's learning experience. The consequent growing gap between the technological frontier and the society's industrial maturity squeezes returns, leading to an equilibrium in which the rate of invention (and growth) is paced by the society's rate of learning.