Paul A. David () (Department of Economics, Stanford University, Stanford, CA 94305-6072, USA & Oxford Internet Institute, University of Oxford, Oxford, UK)
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This introduction to the concept of path dependence, its pertinence for the development of historical social science, and its application in economic analysis and economic history, proceeds from intuitive general ideas about history and historicity in narratives. It provides precise definitions of what is meant by describing a dynamical process as being “historical.” Deterministic and stochastic formalizations of such dynamical systems are distinguished. The characterization of stochastic path dependent processes as “non-ergodic” is explained in non-mathematical language by reference to concepts in probability theory, and a variety of representations of such processes in formal models is surveyed (including the Polya urn-process, certain kinds of Markov chain models, branching processes, and reversible spin systems) to show that while all display path dependence, their properties in other respects are quite different. The diverse set of structural, micro-level conditions that can give rise to path dependence is examined, and a further distinction is drawn between the property of path dependence and the existence of so-called “QWERTY-effects”—characterized by decentralized competitive market failures and consequent “lock-in” to Pareto-inefficient equilibria. Concluding sections consider the implications of the existence of non-ergodic dynamics for the methods of economic policy analysis, and the nature of the guidance that can be obtained in regard to public policy affecting endogenous technological change and institutional evolution.
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