Path Dependence

The outcome of a path-dependent process depends on the course taken to reach that outcome and, in particular, on contingencies that have influenced the process prior to its reaching its outcome. The concept has attracted much interest among social scientists, partly because of the possible suboptimality of the outcome of a path-dependent process, a possibility that conflicts with the claims often made by economists of social processes and the “equilibria” on which they converge.

This entry examines what path dependence is, looks at a well-known case of path dependence, and considers the relationship between the concept and that of market failure.

Put negatively, path-dependent processes do not converge on a unique terminus irrespective of the “historical accidents” that occur on the way. This may be expressed by describing path-dependent processes as nonergodic. Path-dependent processes are consequently unpredictable (although not ontologically indeterminate), for without knowledge of the contingencies that occur along the path prior to their occurrence, an observer can predict neither the course of the path nor its resting place. Studying cases of path dependence therefore involves historical analysis, whereby such contingencies and their influence on the course of the process are traced ex post facto. This explains why studies of path dependence are associated with the motto “History matters”: Only if a process converges uniquely to a given point (i.e., if the process is path in dependent) may one ignore the history of the process and the apparently “random” events that characterize its course.

The concept of path dependence has become common to studies of economic and technological [Page 705]development since the 1980s, although Thorstein Veblen is usually acknowledged as recognizing the phenomenon of path dependence (though not by name) in 1915. The concept may be said to have “come of age” with the works of Brian Arthur and Paul David. The latter's account of the evolution of the QWERTY typewriter keyboard is the most famous study in which claims of path dependence are made. The QWERTY configuration was initially designed in the latter half of the 19th century to overcome a technical problem whereby the typebars became jammed during typing. The QWERTY configuration overcame this problem, yet it is technically inferior to other keyboard settings, as evinced by speed-typing world records, which have usually been claimed by typists using not QWERTY but the Dvorak keyboard, patented in the 1930s. One is thus led to ask why QWERTY is still the dominant keyboard design. One “historical accident” that provided a decisive fillip to QWERTY was the development in the 1880s of touch typing, originally done on the QWERTY keyboard. The association between QWERTY and the inception of touch typing meant that the early touch typists were QWERTY trained, and so those buying typewriters—primarily businesses rather than private households—had an incentive to install QWERTY equipment so that they could employ the most efficient (QWERTY) typists. This was obviously of advantage to QWERTY-trained typists; it also meant that those who sought a career as a typist were more likely to favor QWERTY given the increasing stock of typewriters used in business that were compatible with the skills of a QWERTY-trained typist. Every touch typist who opted for QWERTY increased the probability that others would follow suit and opt for QWERTY when making a choice between keyboard formats on which touch-typing skills were to be acquired, a selection process that has been likened to a Pólya urn process in mathematics. There was therefore positive feedback between businesses that installed QWERTY and typists who learned to touch type on QWERTY keyboards. Keyboard design thereby became “locked in” to QWERTY at the end of the 19th century, a terminus to this developmental path that has never been reversed. It is not clear how or whether convergence on the QWERTY keyboard could be reversed through a decentralized (market) process of the sort that led to QWERTY's dominance.

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