Path dependence explains how the set of decisions one faces for any
given circumstance is limited by the decisions one has made in the
past or by the events that one has experienced, even though past
circumstances may no longer be relevant.
In economics and the social sciences, path dependence can refer either
to outcomes at a single moment in time, or to long-run equilibria of a
process. In common usage, the phrase implies either:
(A) that "history matters" — a broad concept, or
(B) that predictable amplifications of small differences are a
disproportionate cause of later circumstances, and, in the "strong"
form, that this historical hang-over is inefficient.
In the first usage, (A), "history matters" is trivially true in many
contexts; everything has causes, and sometimes different causes lead
to different outcomes. In these contexts, the direct influence of
earlier states may not be notable (unlike "path-dependent" options
in finance, where the influence of history can be non-standard).
It is the narrow concept (B), that has the most explanatory force, and
which is covered in this article.
4 Social sciences
5 Other examples
6 See also
The videotape format war is an example. Three mechanisms independent
of product quality could explain how
VHS achieved dominance over
Betamax from a negligible early adoption lead:
A network effect: videocassette rental stores observed more VHS
rentals and stocked up on
VHS tapes, leading renters to buy VHS
players and rent more
VHS tapes, until there was complete vendor
A VCR manufacturer bandwagon effect of switching to VHS-production
because they expected it to win the standards battle.
Sony, the original developer of Betamax, was not very interested in
supporting the pornographic video industry, which made nearly all
pornographic motion pictures released on video to use
(An alternative analysis is that
VHS was better-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.)
Positive feedback mechanisms, like bandwagon and network effects, are
at the origin of path dependence. They lead to a
reinforcing pattern, in which industries 'tip' towards one or another
product design. Uncoordinated standardisation can be observed in many
Path dependence theory was originally developed by economists to
explain technology adoption processes and industry evolution. The
theoretical ideas have had a strong influence on evolutionary
There are many models and empirical cases where economic processes do
not progress steadily toward some pre-determined and unique
equilibrium, 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 as absorbing states).
This dynamic vision of economic evolution is very different from the
tradition of neo-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 some random events that
disrupted the ongoing course, with irreversible consequences:
In economic development, it is said (initially by Paul David in
1985) that a standard that is first-to-market can become entrenched
QWERTY layout in typewriters still used in computer
keyboards). He called this "path dependence", and said that
inferior standards can persist simply because of the legacy they have
built up. That
QWERTY vs. Dvorak is an example of this phenomenon, has
been re-asserted, questioned, and continues to be argued.
Economic debate continues on the significance of path dependence in
determining how standards form.
Adam Smith to Paul Krugman have noted that similar
businesses tend to congregate geographically ("agglomerate"); opening
near-similar companies attracts 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, further increasing its relative efficiency. This network
effect follows a statistical power law in the idealized case,
though negative feedback can occur (through rising local costs).
Buyers often cluster around sellers, and related businesses frequently
form business clusters, so a concentration of producers (initially
formed by accident and agglomeration) can trigger the emergence of
many dependent businesses in the same region.
In the 1980s, the US dollar exchange rate appreciated, lowering the
world price of tradable 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 of hysteresis, switching barriers, and
If the economy follows adaptive expectations, future inflation is
partly determined by past experience with inflation, since experience
determines expected inflation and this is a major determinant of
A transitory high rate of unemployment during a recession 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 generate
structural unemployment. This structural hysteresis model of the
labour market differs from the prediction of a "natural" unemployment
rate or NAIRU, around which 'cyclical' unemployment is said to move
without influencing the "natural" rate itself.
Liebowitz and Margolis distinguish types of path dependence; some
do not imply inefficiencies and do not challenge the policy
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 of private locked-in inefficiencies exist. Vergne
and Durand qualify this critique by specifying the conditions under
which path dependence theory can be tested empirically.
Technically, a path-dependent stochastic process has an asymptotic
distribution that "evolves as a consequence (function of) the
process's own history". This is also known as a non-ergodic
In The 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.
See also: Historical institutionalism
Recent methodological work in comparative politics and sociology has
adapted the concept of path dependence into analyses of political and
Path dependence has primarily been used in
comparative-historical analyses of the development and persistence of
institutions, whether they be social, political, or cultural. There
are arguably two types of path-dependent processes:
One is the "critical juncture" framework, most notably utilized by
Ruth and David Collier in political science. In the critical juncture,
antecedent conditions allow contingent choices that set a specific
trajectory of institutional development and consolidation that is
difficult to reverse. As in economics, the generic drivers are:
lock-in, positive feedback, increasing returns (the more a choice is
made, the bigger its benefits), and self-reinforcement (which creates
forces sustaining the decision).
The other path-dependent process deals with "reactive sequences" where
a primary event sets off a temporally-linked and causally-tight
deterministic chain of events that is nearly uninterruptible. These
reactive sequences have been used to link the death of Martin Luther
King, Jr. with welfare expansion and the industrial revolution in
England with the development of the steam engine.
The critical juncture framework has been used to explain the
development and persistence of welfare states, labor incorporation in
Latin America, and the variations in economic development between
countries, among other things. Scholars such as Kathleen Thelen
caution that the historical determinism in path-dependent frameworks
is subject to constant disruption from institutional evolution.
Paul Pierson's influential attempt[specify] to rigorously 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.
The path-dependence of emergent strategy has been observed in
behavioral experiments with individuals and groups.
In the social sciences, especially sociology and organizational
theory, a distinct yet closely related concept to path dependence is
the concept of "imprinting", 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.
A general type of path dependence is a typological vestige.
In typography, for example, some customs persist, although the reason
for their existence no longer applies; for example, the placement of
the period inside a quotation in U.S. spelling. In metal type, pieces
of terminal punctuation, such as the comma and period, are
comparatively small and delicate (as they must be x-height for proper
kerning.) Placing the full-height quotation mark on the outside
protected the smaller cast metal sort from damage if the word needed
to be moved around within or between lines. This would be done even if
the period did not belong to the text being quoted.
Evolution is considered by some to be path-dependent: mutations
occurring in the past have had long-term effects on current life
forms, some of which may no longer be adaptive to current conditions.
For instance, there is a controversy about whether the panda's thumb
is a leftover trait or not.
In the computer and software markets, legacy systems indicate path
dependence: customers' needs in the present market often include the
ability to read data or run programs from past generations of
products. Thus, for instance, a customer may need not merely the best
available word processor, but rather the best available word processor
that can read
Microsoft Word files. Such limitations in compatibility
contribute to lock-in, and more subtly, to design compromises for
independently developed products, if they attempt to be compatible.
Also see embrace, extend and extinguish.
Imprinting (organizational theory)
^ Definition from "Our Love Of Sewers: A Lesson in Path Dependence",
Dave Praeger, 15 June 2008.
^ Liebowitz, S.; Margolis, Stephen (2000). Encyclopedia of Law and
Economics. p. 981. ISBN 978-1-85898-984-6. 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.
^ a b Liebowitz, S.; Margolis, S. (September 2000). Bouckaert,
Boudewijn; De Geest, Gerrit, eds. Encyclopedia of Law and Economics,
Volume I. The History and Methodology of Law and
Cheltenham: Edward Elgar. p. 985. ISBN 978-1-85898-984-6.
Retrieved 2010-05-20. 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
^ Bellaïche, Joël (2009). "On the path-dependence of economic
growth" (PDF). Journal of Mathematical Economics. 46 (2): 178.
doi:10.1016/j.jmateco.2009.11.002. Archived from the original (PDF) on
2010-06-24. The standard economic growth rate measurements are
path-dependent, and "the phenomenon of dependence of history might be
ignored for short period of time (10 years, 20 years), but is not
negligible for secular comparisons."
^ Liebowitz, Stan (2002). Re-thinking the Network Economy. p. 41.
ISBN 978-0-8144-0649-6. It was the inferior playing time that led
to the demise of the Betamax, not the fact that it was first or second
^ Nelson, R; Winter, S (1982). An evolutionary theory of economic
change. Harvard University Press.
^ Stack, Martin; Gartland, Myles (2003). "Path Creation, Path
Dependency, and Alternative Theories of the Firm". Journal of Economic
Issues. 37 (2): 487. Paul David and Brian Arthur published several
papers that are now regarded as the foundation of path dependency
(David 1985; Arthur 1989, 1990).
^ Paul David (1985). "Clio and the
Economics of QWERTY". American
Economic Review: 332. In such circumstances "historical accidents" can
neither be ignored, nor neatly quarantined for the purpose of economic
^ Diamond, Jared (April 1997). "The Curse of QWERTY". Discover
^ Liebowitz, S. J.; Margolis, S. E. (April 1990). "The Fable of the
Keys". Journal of Law and Economics. Blackwell Publishers. 30: 1–26.
doi:10.1086/467198. SSRN 1069950 . we conclude that
about as good a design as any alternative
^ David, Paul A. (1999). "At Last, a Remedy for Chronic
QWERTY-skepticism!". , paper for the European Summer School in
Industrial Dynamics (ESSID) at l'Institute d'Etudes Scientifique de
Cargèse (Corse), France, 5–12 September 1999.
^ Puffert, Douglas (2008-02-10). "Path Dependence". Retrieved 20 May
^ D'Souza, Raissa M.; et al. (2007). "Emergence of Tempered
Preferential Attachment from Optimization". Proc. Natl. Acad. Sci.
USA. 104 (15): 6112–6117. doi:10.1073/pnas.0606779104.
^ Jennen, M.; Verwijmeren, P. (2009). "Agglomeration Effects and
Financial Performance". Urban Studies. 47 (12): 2683–2703.
doi:10.1177/0042098010363495. ssrn 1009226.
^ Jen Nelles, Allison Bramwell and David Wolfe (2005). Global Networks
and Local Linkages: The Paradox of Cluster Development in an Open
Economy (PDF). Montreal and Kingston: McGill-Queens University Press
for Queen's School of Policy Studies. p. 230.
ISBN 978-1-55339-047-3. Retrieved 2010-05-20.
^ Stephen E. Margolis; S. J. Liebowitz. "Path Dependence 4. Evidence
for Third-Degree Path Dependence". Retrieved 20 May 2010. Our reading
of the evidence is that there are as yet no proven examples of third
degree path dependence in markets.
^ Vergne, J. P.; Durand, R. (2010). "The Missing Link Between the
Theory and Empirics of Path Dependence: Conceptual Clarification,
Testability Issue, and Methodological Implications". Journal of
Management Studies. 47 (4): 736.
doi:10.1111/j.1467-6486.2009.00913.x. "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."
^ David, Paul (2005).
Evolution and path dependence in economic ideas:
past and present. Edward Elgar. p. 19.
ISBN 978-1-84064-081-6. as generally is the case for branching
processes [in Path dependence, its critics and the quest for
^ Page, Scott E. (January 2006). "Path dependence". Quarterly Journal
of Political Science. Now Publishing Inc. 1 (1): 88.
^ Egidi, Massimo; Narduzzo, Alessandro (October 1997). "The emergence
of path-dependent behaviors in cooperative contexts". International
Journal of Industrial Organization. 15 (6): 677–709.
doi:10.1016/S0167-7187(97)00007-6. [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
^ Marquis, Christopher; Tilcsik, András (2013). "Imprinting: Toward A
Multilevel Theory". Academy of Management Annals: 193–243.
SSRN 2198954 .
Arrow, Kenneth J. (1963), 2nd ed. Social Choice and Individual Values.
Yale University Press, New Haven, pp. 119–120 (constitutional
transitivity as alternative to path dependence on the status quo).
Arthur, W. Brian (1994), Increasing Returns and Path Dependence in the
Economy, Ann Arbor, Michigan: University of Michigan Press.
Boas, Taylor C (2007). "Conceptualizing Continuity and Change: The
Composite-Standard Model of Path Dependence" (PDF). Journal of
Theoretical Politics. 19 (1): 33–54.
Collier, Ruth Berins, and David Collier. (1991), Shaping the Political
Arena: Critical Junctures, the Labor Movement, and Regime Dynamics in
Latin America. Princeton, Princeton University Press, chapter 1.
David, Paul A. (June 2000). "Path dependence, its critics and the
quest for 'historical economics'" (PDF). [permanent dead link],
in P. Garrouste and S. Ioannides (eds),
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Inflation or Decelerating Employment and Growth?"
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Lock-In, and History"
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Study of Politics". American Political Science Review, June.
_____ (2004), Politics in Time: Politics in Time: History,
Institutions, and Social Analysis, Princeton University Press.
Puffert, Douglas J. (1999), "Path Dependence in Economic History"
(based on the entry "Pfadabhängigkeit in der Wirtschaftsgeschichte",
in the Handbuch zur evolutorischen Ökonomik)
_____ (2001), "Path Dependence in Spatial Networks: The
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_____ (2009), Tracks across continents, paths through history: the
economic dynamics of standardization in railway gauge, University of
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Returns, and Historical Institutionalism"., undated mimeo
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unpublished website, with extensive references
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theory and empirics of path dependence", Journal of Management
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