Path Dependence, Lock-In, and History

Abstract:     
Do economies and markets make remediable errors in the choice of products? Does the economy "lock-in" to these incorrect choices even when the knowledge that these choices are incorrect is readily available? The literature of path dependence may be understood to argue that these lock-ins and errors occur, even in a world characterized by voluntary decisions and individually maximizing behavior. In this paper we examine path dependence and illustrate three different forms of the term, each having a different implication regarding market errors and lock-in. Two of these meanings are common in the economy but provide no support for the claims that remediable errors occur. The third meaning, which does imply irremediable error, we show to be based on restrictive assumptions that are likely to be overcome in the real world. The analysis is illustrated by examining the market's choice of videorecorder formats.

Number of Pages in PDF File: 24

Keywords: path dependence, qwerty, lock in

working papers series