A Behavioral Model of Path Dependency: The Economics of Profitable Inefficiency and Market Failure

Posted: 17 Jan 2010

Date Written: 2000

Abstract

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

Altman, Morris, A Behavioral Model of Path Dependency: The Economics of Profitable Inefficiency and Market Failure (2000). Journal of Socio-Economics, Vol. 29, 2000. Available at SSRN: https://ssrn.com/abstract=1536809

Morris Altman (Contact Author)

University of Newcastle ( email )

University Drive
Callaghan, NSW 2308
Australia

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