In the social sciences, path dependence is the phenomenon of past events or decisions constraining or defining later events or decisions. It can describe outcomes at a single point in time or to the long-run equilibria of a process. Path dependence has been used to describe institutions, technical standards, patterns of economic or social development, organizational behavior, and more. In common usage, it makes two types of claims. The first is the broad concept that "history matters", often used to challenge explanations that pay insufficient attention to historical factors. 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" or "particular events in the past can have crucial effects in the future." 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 as increasing returns, positive feedback effects, or other mechanisms.
Commercial examples
Videocassette recording systems The videotape format war is a key example of path dependence. 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 lock-in. 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, did not let pornography companies license their technology for mass production, which meant that nearly all pornographic motion pictures released on video used VHS format. 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.
QWERTY keyboard
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. 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.
Railway track gauges The standard gauge 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. More than half the world's railway gauges are 4 feet 8+1⁄2 inches (143.5 cm), known as standard gauge, despite the consensus among engineers being that wider gauges have increased performance 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 the Liverpool 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. 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, low center of gravity (desirable, especially in double-stack rail transport). While the attempts with Brunel gauge, a significantly broader gauge failed, the widespread use of Iberian gauge, Russian gauge and Indian gauge, all of which are broader than Stephenson's choice, show that there is nothing inherent to the 143.5 cm gauge that led to its global success.
Economics 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 economics. A common expression of the concept is the claim 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. 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.
… excerpt ends here. Continue reading the full article.
