A Behavioral Model of Path Dependency: The Economics of Profitable Inefficiency and Market Failure
Posted: 17 Jan 2010
Date Written: 2000
In this article, a model of path dependency is developed, grounded in behavioral economics (x-efficiency/efficiency wage theory), where it becomes possible and reasonable to expect a multiplicity of equilibrium solutions to identical economic problems and for the dominant solution to be sub-optimal and inefficient. Unlike in the pioneering work on path dependency by Paul David and Brian Arthur, the sup-optimal outcomes generated in this model do not provide economic agents with exploitable economic opportunities in the context of their particular objective functions. Such opportunities constitute, from the perspective of the conventional wisdom, the Achilles Heel of their work.
Keywords: Behavioural Economics, Efficiency wage theory, Equilibrium, Economic agents
JEL Classification: J31, D52
Suggested Citation: Suggested Citation