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Lock-in institutions and efficiency

  • Khalil, Elias L.

Economists who emphasize path dependence generally dispute, at first approximation, the effectiveness of rational choice in understanding institutions. Such economists, belonging to the original (old) institutional economics and the historical school maintain that the constraint function is riddled with inefficient technologies and institutions which agents fail to replace with superior ones even when the switching cost is clearly lower than expected benefit. The argument ultimately rests on a theory of action á la Herbert Simon—where agents become habituated for whatever is the default institution. Such a theory recognizes that agents are ready to replace habits with more viable ones—but only when agents face shocks or crises. Such recognition, though, necessarily allows rational choice, in the sense of responsiveness to incentives, to enter from the rear window: after all, shocks and crises are merely severe incentives.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 88 (2013)
Issue (Month): C ()
Pages: 27-36

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Handle: RePEc:eee:jeborg:v:88:y:2013:i:c:p:27-36
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  1. Khalil, Elias L., 2009. "Self-deceit and self-serving bias: Adam Smith on ‘General Rules’," Journal of Institutional Economics, Cambridge University Press, vol. 5(02), pages 251-258, August.
  2. Geoffrey Hodgson & Thorbjørn Knudsen, 2004. "The firm as an interactor: firms as vehicles for habits and routines," Journal of Evolutionary Economics, Springer, vol. 14(3), pages 281-307, 07.
  3. Vernon L. Smith, 2003. "Constructivist and Ecological Rationality in Economics," American Economic Review, American Economic Association, vol. 93(3), pages 465-508, June.
  4. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, June.
  5. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  6. Stephen E. Margolis & S.J. Liebowitz, . "Path Dependence, Lock-in and History," Working Paper Series 10, North Carolina State University, Department of Economics.
  7. Elias L. Khalil, 2010. "Adam Smith'S Concept Of Self-Command As A Solution To Dynamic Inconsistency And The Commitment Problem," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 177-191, 01.
  8. Geoffrey M. Hodgson, 1998. "The Approach of Institutional Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 166-192, March.
  9. Khalil, Elias L., 2010. "The Bayesian fallacy: Distinguishing internal motivations and religious beliefs from other beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 268-280, August.
  10. Boland, Lawrence A, 1981. "On the Futility of Criticizing the Neoclassical Maximization Hypothesis," American Economic Review, American Economic Association, vol. 71(5), pages 1031-36, December.
  11. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
  12. Paul A. David, 1999. "At last, a remedy for chronic QWERTY-skepticism!," Working Papers 99025, Stanford University, Department of Economics.
  13. Choi, Young Back, 2008. "Path dependence and the Korean alphabet," Journal of Economic Behavior & Organization, Elsevier, vol. 65(2), pages 185-201, February.
  14. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
  15. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
  16. repec:oup:qjecon:v:116:y:2001:i:1:p:81-119 is not listed on IDEAS
  17. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change
    [Understanding the Process of Economic Change]
    ," Introductory Chapters, Princeton University Press.
  18. Elias L. Khalil, 2012. "Temptations: A General Theory of Over-eating, Under-saving, Favoritism, Certainty Effect, Spoiling of Children, Pornography-Viewing, and Regretting," Monash Economics Working Papers 26-12, Monash University, Department of Economics.
  19. Khalil, Elias L, 1997. "Buridan's Ass, Risk, Uncertainty, and Self-Competition: A Theory of Entrepreneurship," Kyklos, Wiley Blackwell, vol. 50(2), pages 147-63.
  20. Felin, Teppo & Foss, Nicolai J., 2011. "The endogenous origins of experience, routines, and organizational capabilities: the poverty of stimulus," Journal of Institutional Economics, Cambridge University Press, vol. 7(02), pages 231-256, June.
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