Organizations and Markets

Paul David on Path Dependence

15 May 2007 at 3:59 pm Peter G. Klein 2 comments

| Peter Klein |

The second issue of Cliometrica features essays by heavy hitters Paul David, Eugene White, and Angus Maddison. David’s contribution is a summary and overview of his work on path dependence. Note the rather immodest title: “Path Dependence: A Foundational Concept for Historical Social Science.” Well. . . . David’s attachment to the QWERTY concept appears as strong as ever, though the facts of David’s examples have been seriously contested, including not only the typewriter keyboard but also the choice between AC and DC power, the VHS format over Beta, and so on. David’s response to his critics here seems surprisingly weak and tentative:

The contention that the process of “market competition” eventually works to rectify the mistakes of profit-motivated agents by harnessing the interests and capabilities of other profit-seekers — who will find opportunities for gain by eliminating existing sources of inefficiency — undoubtedly warrants serious consideration in this regard (see Liebowitz and Margolis 1990; Puffert 2002). But that means it ought not be accepted on faith. Rather the opposite approach, however, seems to be adopted by those who argue that it is implausible to suppose that market incentives will not operate rapidly to eliminate sources of substantial inefficiencies in the production and use of commodities, and that the burden of empirical proof therefore should lie upon those who claim that sub-optimal outcomes of decentralized market-guided choices in the past have saddled subsequent generations with quantitatively significant economic costs.

I hardly think the critics are asking that their revisionist historical analysis be taken on faith!

Anyway, I believe Williamson gets it right with his concept of “remediableness” — if a market outcome appears inefficient, ex post, but this could not have been foreseen when choices were made and cannot now be altered with net gains — then what of it? Moreover, there is little comparative institutional analysis in David’s research program. As I once commented on David’s essay “At Last, A Remedy for Chronic QWERTY Skepticism!”:

Suppose I were fully convinced that the market’s ex ante choices of keyboards, nuclear reactors, and agricultural technologies were suboptimal (ex post) and that the resulting welfare losses were economically significant. Is this “market failure”? Name the feasible alternative. Where is the evidence that non-market standard-setting — e.g., standard-setting by a government body — is less susceptible to QWERTY effects? Indeed, I would think that if the political-economy literature of the last 25 years has taught us anything, it is that politicized decision making is far more likely to lead to suboptimal path dependence.

Dierdre McCloskey thought I hit the QWERTY nail on the head.

Entry filed under: Business/Economic History, Classical Liberalism.