Ludwig von Mises Institute

Path dependence

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Path dependence in economics is the phenomenon whereby an economic outcome is the result of a historical path or series of accidents rather than current market conditions. In processes which result in such outcomes it is commonly said that "history matters".[1] The idea of path dependence was put forth by economists Brian Arthur and Paul David[2] and is based on an analogy used to characterize systems in biology and physics which have strong sensitivity to initial conditions and are thus said to be path dependent.[2] Economic outcomes which are path dependent are sometimes believed to potentially result in a market failure if for example they lead to a related phenomenon known as technological lock-in, whereby a possibly inferior standard is chosen as a result of its path dependence.


References[edit]

  1. Puffert, Douglas. "Path Dependence", 2010.
  2. 2.0 2.1 Spulber, Daniel. "Famous Fables of Economic – Myths of Market Failures", 2002, page 12.

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