“Nuclear Power Reactors: A Study in Technological Lock-In,” R. Cowan (1990)

If you want to start a heated debate among historians of technology, just express an opinion about the importance of path dependence and then watch the sparks fly. Do “bad” technologies prevail because of random factors, what Brian Arthur calls “historical small events”? Or are what look like bad technologies actually good ones that prevailed for sensible reasons? Could optimal policy improve things? More on that last question in the final paragraph.

Robin Cowan, now at Maastricht, is an economist right in my sweet spot: a theorist interested in technology who enjoys the occasional dig through historical archives. His PhD dissertation concerns conditions for technological lock-in. Basically, increasing returns to scale (learning-by-using, for example) and unknown future benefits of a given research line (here is where the multiarmed bandit comes in) generally will lead to 1) a sole technology dominating the market, 2) each technology, regardless of underlying quality, having a positive probability of being that technology, and 3) cycling between technology early in the lifecycle. In the present paper, Cowan examines the history of nuclear power reactors through this framework; apropos to the previous post on this site, I think what Cowan does is a much more sensible test of a theory than any sort of statistical process.

Nuclear power is interesting because, at least of as 1990, light water nuclear power reactors are dominant despite the fact that many other types of reactors appear to have underlying quality/cost combinations as good or better. How did light water come to dominate? After WW2, the US had a monopoly on enriched uranium production, and was unwilling to share because of national security concerns. Development of nuclear power technology was also driven by military concerns: nuclear submarines could stay underwater longer, for example. A military focus led policymakers to focus research effort on small reactors which could be developed quickly.

In the 1950s, following the Soviet atomic bomb, US nuclear power policy shifted somewhat toward developing power for civilians. There was a belief that the Soviets would develop allies in exchange for Soviet nuclear power plants, and so the US began pushing “Atoms for Peace” civilian nuclear power to counter that threat. There was an urgency to such development, and because light water reactors had already been developed and accepted for submarine use, they were the quickest to develop for civilian power plant export. A handful of US firms with experience in light water heavily subsidized the capital cost of their plants, which led to rapid adoption in the early 1960s. Because of learning-by-doing, light water plant costs quickly decreased, and because of network effects – more users means more knowledge of potential safety risks, for example – a number of nations adopted light water plants soon after. During this period, other technologies like heavy water and gas graphite suffered temporary setbacks which you can think of as a bad draw in a multiarmed bandit. Because of future uncertainty in the bandit model, and learning-by-using, light water plants locked themselves in. As of 1990, at least, Cowan notes that experts both then, as well as in the 50s and 60s, did not believe that light water was necessarily the best civilian nuclear power technology.

Much more detail is found in the paper. One thing to worry about when reading, though, is the conflation of path dependence in general and socially suboptimal path dependence. Imagine two technologies with identical output and marginal cost, but one with fixed research cost 7 and one with fixed research cost 10. If the second is adopted by everyone, it appears naively that the “wrong” technology has won out. But what if the cost of 10 was already borne by military researchers developing a similar product? In that case, the second technology is socially optimal. The multiarmed bandit has similar issues – in the fact of uncertainty about nuclear power technology quality, it is not obvious that a social planner would have done anything different; indeed, many important decisions were made by the US Navy. I only mention this distinction because a friend and I have a model of technology that generates similar path dependence, but in a way that can absolutely be countered by better policy, and I’m not sure how Cowan’s historical example speaks to our model.

http://dimetic.dime-eu.org/dimetic_files/cowan1990.pdf (Final Journal of Economic History 1990 version)

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