Assessing
the
Impact
of
Progress
and
Learning
Curves
on
Clean
Air
Act
Compliance
Costs
Cynthia
J.
Manson,
Matthew
B.
Nelson,
and
James
E.
Neumann
Industrial
Economics,
Incorporated
Cambridge,
MA
September
30,
2001
ABSTRACT
Economic
analysis
of
the
costs
and
benefits
of
regulations
has
long
been
an
important
regulatory
decision­
making
tool;
it
has
been
used
in
parts
of
the
Federal
government
since
the
1930'
s,
and
has
been
required
for
major
rules
since
Executive
Order
12291
in
1981.
The
usefulness
of
these
analyses
depends
on
the
accuracy
of
the
underlying
cost
and
benefit
estimates.
In
prior
work
the
authors
established
that
three
factors
contribute
to
a
tendency
for
regulatory
cost
estimates
to
be
overestimated:
(
1)
"
learning
by
doing,"
or
learning
curve
impacts,
which
refer
to
efficiency
gains
related
to
cumulative
production;
(
2)
innovation
and
technological
change;
and
(
3)
cost­
reducing
features
of
regulatory
design.
Most
existing
Agency
cost
estimates
do
not
make
adjustments
to
account
for
these
factors.

This
paper
assesses
methods
and
data
available
to
improve
the
accuracy
of
regulatory
cost
projections,
with
particular
focus
on
the
practical
application
of
progress
and
learning
curves.
The
authors
conclude
that
the
learning
curve
concept
has
a
sound
theoretical
and
empirical
basis,
and
that
there
is
evidence
that
learning
and
progress
do
occur
in
the
production
of
air
pollution
control
devices,
so
that
costs
for
these
devices
can
be
expected
to
decline
over
time,
in
real
terms.
The
authors
present
three
case
studies
that
illustrate
that
a
quantitative
adjustment
to
cost
estimates
is
practical
and
can
often
be
justified.
The
presence
of
uncertainties
in
the
quantitative
effect
of
the
application
of
progress
curves,
however,
suggests
that
analysts
should
consider
whether
an
explicit
quantitative
uncertainty
analysis
ought
to
be
applied
in
all
cases.
The
use
of
a
single
progress
ratio
may
in
some
cases
suggest
more
certainty
in
the
anticipated
pace
of
progress
than
is
warranted;
in
some
cases,
a
range
of
progress
ratios
might
be
more
appropriate.
The
authors
also
present
guidelines
for
the
application
of
the
progress
curve
literature
to
air
pollution
control
regulatory
cost
estimates.
