Subsidies for New Technologies and Knowledge Spillovers from Learning by Doing

This study empirically examines a prominent justification for public subsidies of emerging technologies: that stimulating demand for them provides opportunities for learning by doing. Even if firms learn from their experience, subsidies are still second best to pricing negative externalities if firms can appropriate the benefits of learning. I construct a panel of electricity output from wind power projects, for a case involving $1 billion in public funds, to assess whether firms performance benefited from the experience of other firms. I find evidence of learning by doing and knowledge spillovers. However, knowledge gained from experience shows both diminishing returns and depreciating effectiveness. (C) 2012 by the Association for Public Policy Analysis and Management.