Baumol’s Cost Disease
The tendency for costs and prices to rise in sectors that cannot easily incorporate technological advances, relative to technology-adopting sectors.
The so-called cost disease was initially diagnosed by William Baumol and William Bowen (Baumol, W.J., and W. Bowen. 1966. Performing arts: The economic dilemma. New York: Twentieth Century Fund.) in their mid-1960s study of the performing arts on behalf of the Ford Foundation. Their observations regarding differential productivity enhancements in the “progressive” and “non-progressive” or “stagnant” sectors helped to explain the earnings gap in the arts as well as elements of urban crises and rising costs in many service sectors. Many theoretical and empirical studies later, the concept remains contentious, with supporters and doubters still.
KeywordsProductivity Unbalanced growth Cost disease
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