An information perspective on path dependence

Abstract

Abstract:This paper proposes an information perspective on path dependence. From this perspective, historical paths are important insofar as knowledge about them shapes current decisions, for better or worse. A key consideration is the extent to which relevant information is fully inscribed in the existing configuration of state variables, including organizational structures and institutional norms. Using a chess analogy, path dependency arises whenever a decision maker's ‘move’ depends not only upon existing state variables, but also knowledge of the path by which this configuration came about. This chess analogy is then extended to various institutional contexts such as legal expungement of criminal records, patient privacy rights, and corporate executive succession strategies. A formal notation is introduced to specify this definition more precisely, and to compare it with other perspectives on path dependency, such as lock-in effects, increasing returns to scale, ergodic equilibria, and generalized notions that ‘history matters’.