Path Dependence (EH.net Encyclopedia)

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 Path Dependence

 
 
 
 Douglas Puffert, University of Warwick

 Path dependence is the dependence of economic outcomes on the path of previous outcomes, rather than simply on current conditions. In a path dependent process, “history matters” — it has an enduring influence. Choices made on the basis of transitory conditions can persist long after those conditions change. Thus, explanations of the outcomes of path-dependent processes require looking at history, rather than simply at current conditions of technology, preferences, and other factors that determine outcomes.

 Path-dependent features of the economy range from small-scale technical standards to large-scale institutions and patterns of economic development. Several of the most prominent path-dependent features of the economy are technical standards, such as the “QWERTY” standard typewriter (and computer) keyboard and the “standard gauge” of railway track — i.e., the width between the rails. The case of QWERTY has been particularly controversial, and it is discussed at some length below. The case of track gauge is useful for introducing several typical features of path-dependent processes and their outcomes.

 Standard Railway Gauges and the Questions They Suggest 

 Four feet 8-1/2 inches (1.435 meters) is the standard gauge for railways throughout North America, in much of Europe, and altogether on over half of the world’s railway routes. Indeed, it has been the most common gauge throughout the history of modern railways, since the late 1820s. Should we conclude, as economists often do for popular products or practices, that this standard gauge has proven itself technically and economically optimal? Has it been chosen because of its superior performance or lower costs? If so, has it proven superior for every new generation of railway technology and for all changes in traffic conditions? What of the other gauges, broader or narrower, that are used as local standards in some parts of the world — are these gauges generally used because different technology or different traffic conditions in those regions favor these gauges?

 The answer to all these questions is no. The consensus of engineering opinion has usually favored gauges broader than 4’8.5″, and in the late nineteenth century an important minority of engineers favored narrower gauges. Nevertheless, the gauge of 4’8.5″ has always had greater use in practice because of the history of its use. Indeed, eve

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