The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

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
  • Charles M. Gray
Reference work entry


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.


Productivity Unbalanced growth Cost disease 

JEL Categories

D2 H7 I1 I2 J31 L3 O3 O4 Z11 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  1. 1.University of St. Thomas, MinneapolisMinnesotaUSA

Section editors and affiliations

  • Robert Picard

There are no affiliations available