Abstract
Discusses the limits and possibilities of the theory of path dependence. From a historian's point of view, the theory is limited by its use of analogies to physical causality. On the other hand, the theory offers a strong and specific argument in support of the claim that "history matters." Paul A. David invented the theory of path dependence using the example of the "qwerty" keyboard, a layout unchanged since the 1890's despite the existence of superior solutions. His was an effort to convince economists of the importance of history and was therefore formulated as a provocation within the economist's paradigm. It was an attack on the concept of "decreasing returns to scale," which is the foundation for the neoclassical view of the self-regulating market. David, together with Brian Arthur, polemically emphasized "increasing returns to adoption" in an effort to prove the survival of choices made in the past. The theory has gained acceptance among some economists but has also been imprisoned within a paradigm foreign to the historian. However, David has explained that path dependence covers a broader class of cases. The article discusses how the theory can be reformulated without losing clarity. The discussion is organized around three elements of the original theory: a solution has survived despite the disappearance of the problem; a solution lasts due to lock-in or some kind of inflexibility; and the solution is suboptimal compared to later alternatives. In relation to these elements, a solution may not only be the result of chance or irrationality but rational in the circumstances of the past situation. Furthermore, in order for a path to exist there must have appeared an alternative. Without an alternative, there is no path. Lastly, suboptimality cannot be a necessary criterion for the definition of a path, since, for example, the superior or inferior quality of a specific solution in many cases is a matter of debate. Path dependence can be used in many empirical fields, but it is still a specific theory about a strong heritage from the past in the present.