Exponential improvements and increasing returns to scale

This paper uses the concepts of “increasing returns to scale” (IRtS) and nested hierchies of subsystems (NHoS) to explain the sources and implications of exponential improvements. IRtS exists to a greater extent in some technologies than in other technologies and realizing the benefits from IRtS often depends on the performance and cost of lower level “components” in system´s NHOS. On the other hand, when a component has a large impact on the cost and performance of a system and when the component exhibits increasing returns over a broad range of scale, the IRtS in the component can drive exponential improvements in the cost and performance of the system.