Path dependence is a concept in thesocial sciences, referring to processes where past events or decisions constrain later events or decisions.[1][2] It can be used to refer to outcomes at a single point in time or to long-run equilibria of a process.[3] Path dependence has been used to describe institutions,technical standards, patterns ofeconomic or social development,organizational behavior, and more.[4][1]
In common usage, the phrase can imply two types of claims. The first is the broad concept that "history matters", often articulated to challenge explanations that pay insufficient attention to historical factors.[1][5][6] This claim can be formulated simply as "the future development of an economic system is affected by the path it has traced out in the past"[7] or "particular events in the past can have crucial effects in the future."[1] The second is a more specific claim about how past events or decisions affect future events or decisions in significant or disproportionate ways, through mechanisms such asincreasing returns,positive feedback effects, or other mechanisms.[1][2][3][5]
Thevideotape format war is a key example of path dependence. Three mechanismsindependent of product quality could explain howVHSachieved dominance overBetamax from a negligibleearly adoption lead:
An alternative analysis is that VHS wasbetter-adapted to market demands (e.g. having a longer recording time). In this interpretation, path dependence had little to do with VHS's success, which would have occurred even if Betamax had established an early lead.[9]
The QWERTY keyboard is a prominent example of path dependence due to the widespread emergence and persistence of the QWERTY keyboard. QWERTY has persisted over time despite potentially more efficient keyboard arrangements being developed –QWERTY vs. Dvorak is an example of this.[10] However, as it is not clear whether other keyboard layouts really are better, there is still debate if this is a good example of path dependence.[11][12]
The standardgauge of railway tracks is another example of path dependence which explains how a seemingly insignificant event or circumstance can change the choice of technology over the long run despite contemporary know-how showing such a choice to be inefficient.[13]
More than half the world's railway gauges are 4 feet8+1⁄2 inches (143.5 cm), known asstandard gauge, despite the consensus among engineers being that wider gauges have increased performance[clarification needed] and speed. The path to the adoption of the standard gauge began in the late 1820s when George Stephenson, a British engineer, began work on theLiverpool and Manchester Railway. His experience with primitive coal tramways resulted in this gauge width being copied by the Liverpool and Manchester Railway, then the rest of Great Britain, and finally by railroads in Europe and North America.[14]
There are tradeoffs involved in the choice of rail gauge between the cost of constructing a line (which rises with wider gauges) and various performance metrics, including maximum speed, lowcenter of gravity (desirable, especially indouble-stack rail transport). While the attempts withBrunel gauge, a significantly broader gauge failed, the widespread use ofIberian gauge,Russian gauge andIndian gauge, all of which are broader than Stephenson's choice, show that there is nothing inherent to the 1435 mm gauge that led to its global success.
Path dependence theory was originally developed by economists to explain technology adoption processes and industry evolution. The theoretical ideas have had a strong influence onevolutionary economics.[15] A common expression of the concept is the claim that predictable amplifications of small differences are a disproportionatecause of later circumstances, and, in the "strong" form, that this historical hang-over isinefficient.[16]
There are many models and empirical cases where economic processes do not progress steadily toward some pre-determined and uniqueequilibrium, but rather the nature of any equilibrium achieved depends partly on the process of getting there. Therefore, the outcome of a path-dependent process will often not converge towards a unique equilibrium, but will instead reach one of several equilibria (sometimes known asabsorbing states).
This dynamic vision of economic evolution is very different from the tradition ofneo-classical economics, which in its simplest form assumed that only a single outcome could possibly be reached, regardless of initial conditions or transitory events. With path dependence, both the starting point and 'accidental' events (noise) can have significant effects on the ultimate outcome. In each of the following examples it is possible to identify somerandom events that disrupted the ongoing course, with irreversible consequences.
In economic development, it is said (initially byPaul David in 1985)[17] that astandard that is first-to-market can become entrenched (like theQWERTY layout in typewriters still used in computer keyboards). He called this "path dependence",[10] and said that inferior standards can persist simply because of thelegacy they have built up. ThatQWERTY vs. Dvorak is an example of this phenomenon, has been re-asserted,[18] questioned,[19] and continues to be argued.[20] Economic debate continues on the significance of path dependence in determining how standards form.[21]
Economists fromAlfred Marshall toPaul Krugman have noted that similar businesses tend to congregate geographically ("agglomerate"); opening near similar companiesattracts workers with skills in that business, which draws in more businesses seeking experienced employees. There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically, participants elsewhere are at a disadvantage, and will tend to move into the hub, furtherincreasing its relative efficiency. Thisnetwork effect follows a statisticalpower law in the idealized case,[22] thoughnegative feedback can occur (through rising local costs).[23]Buyers oftencluster around sellers, and related businesses frequently formbusiness clusters, so a concentration of producers (initially formed by accident and agglomeration) can trigger the emergence of many dependent businesses in the same region.[24]
In the 1980s, the US dollarexchange rate appreciated, lowering the world price oftradable goods below the cost of production in many (previously successful)U.S. manufacturers. Some of the factories that closed as a result, could later have been operated at a (cash-flow) profit after dollar depreciation, but reopening would have been too expensive. This is an example ofhysteresis,switching barriers, and irreversibility.
If the economy followsadaptive expectations, futureinflation is partly determined by past experience with inflation, since experience determines expected inflation and this is a major determinant of realized inflation.
A transitory high rate ofunemployment during arecession can lead to a permanently higher unemployment rate because of the skills loss (or skill obsolescence) by the unemployed, along with a deterioration of work attitudes. In other words, cyclical unemployment may generatestructural unemployment. This structural hysteresis model of thelabour market differs from the prediction of a "natural" unemployment rate orNAIRU, around which 'cyclical' unemployment is said to move without influencing the "natural" rate itself.
Liebowitz and Margolis distinguishtypes of path dependence;[25] some do not imply inefficiencies and do not challenge thepolicy implications of neoclassical economics. Only "third-degree" path dependence—where switching gains are high, but transition is impractical—involves such a challenge. They argue that such situations should be rare for theoretical reasons, and that no real-world cases ofprivate locked-in inefficiencies exist.[26] Vergne and Durand qualify this critique by specifying the conditions under which path dependence theory can be tested empirically.[27]
Technically, a path-dependent stochastic process has anasymptotic distribution that "evolves as a consequence (function of) the process's own history".[28] This is also known as anon-ergodicstochastic process.
InThe Theory of the Growth of the Firm (1959),Edith Penrose analyzed how the growth of a firm both organically and through acquisition is strongly influenced by the experience of its managers and the history of the firm's development.
Path dependence may arise or be hindered by a number of important factors, these may include
Recent methodological work in comparative politics and sociology has adapted the concept of path dependence into analyses of political and social phenomena. Path dependence has primarily been used incomparative-historical analyses of the development and persistence ofinstitutions, whether they be social, political, or cultural. There are arguably two types of path-dependent processes:
The critical juncture framework has been used to explain the development and persistence ofwelfare states, labor incorporation inLatin America, and the variations ineconomic development between countries, among other things.[31] Scholars such as Kathleen Thelen caution that thehistorical determinism in path-dependent frameworks is subject to constant disruption frominstitutional evolution.
Kathleen Thelen has criticized the application of QWERTY keyboard-style mechanisms to politics. She argues that such applications to politics are both too contingent and too deterministic. Too contingent in the sense that the initial choice is open and flukey, and too deterministic in the sense that once the initial choice is made, an unavoidable path inevitably forms from which there is no return.[32]
Based on the theory of path dependence, Monika Stachowiak-Kudła and Janusz Kudła show that legal tradition affects the administrative court's rulings in Poland. It also complements the two other reasons for diversified verdicts: the experience of the judges and courts (specialization) and preference (bias) for one of the parties. This effect is persistent even if the verdicts are controversial and result in serious consequences for a party and when the penalty paid by the complainant is perceived as excessive but fulfilling the strict rules of law. The German tradition of law favours legal certainty, while the courts from the former Russian and Austrian partitions are more likely to refer to the principle of justice. Interestingly, the institutional factors can be identified almost one hundred years after the end of the partition period and the unification of formal and material law, corroborating the existence of path dependence.[33][relevant?]
Paul Pierson's influential attempt[specify] torigorously formalize path dependence within political science, draws partly on ideas from economics. Herman Schwartz has questioned those efforts, arguing that forces analogous to those identified in the economic literature are not pervasive in the political realm, where the strategic exercise of power gives rise to, and transforms, institutions.
Especiallysociology andorganizational theory, a distinct yet closely related concept to path dependence is the concept ofimprinting which captures how initial environmental conditions leave a persistent mark (or imprint) on organizations and organizational collectives (such as industries and communities), thus continuing to shape organizational behaviours and outcomes in the long run, even as external environmental conditions change.[34]
The path dependence ofemergent strategy has been observed in behavioralexperiments with individuals andgroups.[35]
Most generally, path dependence means that where we go next depends not only on where we are now, but also upon where we have been.
It was the inferior playing time that led to the demise of the Betamax, not the fact that it was first or second or third.
{{cite journal}}:Check|url= value (help)path dependence can be weak (the efficiency of the chosen path is tied with some alternatives), semi-strong, (the chosen path is not the best but not worth fixing, or strong (the chosen path is highly inefficient, but we are unable to correct it).
Paul David and Brian Arthur published several papers that are now regarded as the foundation of path dependency (David 1985; Arthur 1989, 1990).
we conclude that QWERTY is about as good a design as any alternative
path dependence can be weak (the efficiency of the chosen path is tied with some alternatives), semi-strong, (the chosen path is not the best but not worth fixing, or strong (the chosen path is highly inefficient, but we are unable to correct it).
Our reading of the evidence is that there are as yet no proven examples of third degree path dependence in markets.
In particular, we suggest moving away from historical case studies of supposedly path-dependent processes to focus on more controlled research designs[,] such as simulations, experiments, and counterfactual investigation."
as generally is the case for branching processes [in Path dependence, its critics and the quest for 'historical economics']
[Some test subjects] adopted a strategy once and for all[,] and insisted on using it[,] even when the configurations could not be efficiently played with the strategy adopted.
