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Innovation in commercial air transportation: are historical changes in factor proportions explained by relative factor prices?

University of British Columbia

An examination of historical changes in technical efficiency in the U.S. air transportation industry and trends in relative factor prices reveals a relationship that is consistent with the economic theory of production. The study attempts to show the extent to which this relationship reflects causality. Average factor productivities for selected aircraft introduced between 1948 and 1972 were calculated on an ad hoc basis to document the particular events that established the overall trends in technical efficiency. Those aircraft and innovations that had characteristics consistent with prevailing factor price incentives were identified and the circumstances surrounding their introduction analyzed to determine whether factor proportions had been set in accordance with these incentives. It is found that exogenous technological developments and considerations related to the improvement of quality of output had just as great an influence in establishing trends in technical efficiency as considerations related to the maximization of economic efficiency. The influence of the military, oligopolistic interdependence in the aircraft manufacturing industry, and the effects of speed on quality of output created problems of identification. Possible effects on past events of a higher relative price for energy were examined. It is shown that this modification of factor price conditions would quite likely have had a significant impact on the historical pattern of technological development.

Text

2010-02-02

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http://hdl.handle.net/2429/19553

Interdisciplinary Studies

University of British Columbia

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