Production dynamics and organizational learning

Abstract

Evidences indicate that around 50\% of productivity increase originates from organizational learning and learning by doing. In lack of production practices, offshoring/outsourcing production capacities may decrease long-run competitiveness. This paper develops models in which productivity increase directly depends on the production volume of the past and we construct continuous and discrete time models to analyze the dynamics of production volumes over time. We found that under zero discount or learning rate the production volume is constant over time, otherwise, it is increasing when we use continuous time approach. However, in discrete-time versions, production levels may decrease over time. For the continuous-time, the optimal control model can be solved explicitly and to illustrate the behavior of the discrete-time models we present a backward dynamic procedure for the two-period models.