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Path Dependence, its critics, and the quest for 'historical economics'

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Paul A. David

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Abstract

November 1998 - Revised March 2000

The concept of path dependence refers to a property of contingent, non-reversible dynamical processes, including a wide array of biological and social processes that can properly be described as "evolutionary." To dispell existing confusions in the literature, and clarify the meaning and significance of path dependence for economists, the paper formulates definitions that relate the phenomenon to the property of non-ergodicity in stochastic processes; it examines the nature of the relationship between between path dependence and "market failure," and discusses the meaning of "lock-in." Unlike tests for the presence of non-ergodicity, assessments of the economic significance of path dependence are shown to involve difficult issues of counterfactual specification, and the welfare evaluation of alternative dynamic paths rather than terminal states. The policy implications of the existence of path dependence are shown to be more subtle and, as a rule, quite different from those which have been presumed by critics of the concept. A concluding section applies the notion of "lock-in" reflexively to the evolution of economic analysis, suggesting that resistence to historical economics is a manifestation of "sunk cost hysteresis" in the sphere of human cognitive development. Keywords: path dependence, non-ergodicity, irreversibility, lock-in, counterfactual analysis JEL Classification: A1,B0, C4, D9, N0, O3

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 00011.

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Keywords: path dependence non-ergodicity irreversibility lock-in counterfactual analysis JEL Classification

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Find related papers by JEL classification:
A1 - General Economics and Teaching - - General Economics
B0 - Schools of Economic Thought and Methodology - - General
C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
D9 - Microeconomics - - Intertemporal Choice and Growth
N0 - Economic History - - General
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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  1. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. E. Fabio Arcangeli & Giorgio Padrin, 2004. "Endogenous space in the Net era," ERSA conference papers ersa04p438, European Regional Science Association. [Downloadable!]
  2. Donald R. Davis & David E. Weinstein, 2004. "A Search for Multiple Equilibria in Urban Industrial Structure," NBER Working Papers 10252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Bertocco Giancarlo, 2006. "Finance and Development: is Schumpeter’s Analysis still relevant?," Economics and Quantitative Methods qf06011, Department of Economics, University of Insubria. [Downloadable!]
  4. Eric Crampton & Donald Boudreaux, 2004. "Does Cyberspace Need Antitrust?," Industrial Organization 0401001, EconWPA. [Downloadable!]
  5. Paul A. David, 2001. "The Beginnings and Prospective Ending of “End-to-End”," Working Papers 01012, Stanford University, Department of Economics. [Downloadable!]
  6. Daniela Grieco, 2006. "Degree of innovativeness and market structure: A model," CESPRI Working Papers 178, CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy, revised May 2006. [Downloadable!]
  7. Patrucco Pier Paolo, 2002. "The emergence of technology systems: Knowledge production and distribution in the case of the Emilian plastics district," Laboratory of Economics Working Papers 200206, University of Turin. [Downloadable!]
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  8. Paul A. David, 2005. "The Beginnings and Prospective Ending of “End-to-End”: An Evolutionary Perspective On the Internet’s Architecture," Industrial Organization 0502012, EconWPA. [Downloadable!]
  9. repec:att:wimass:192032 is not listed on IDEAS
  10. Jean-Michel Dalle & Paul David, 2005. "The Allocation of Software Development Resources In ‘Open Source’ Production Mode," Industrial Organization 0502011, EconWPA. [Downloadable!]
  11. Donald R. Davis & David E. Weinstein, 2002. "Bones, Bombs, and Break Points: The Geography of Economic Activity," American Economic Review, American Economic Association, vol. 92(5), pages 1269-1289, December. [Downloadable!] (restricted)
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