Market Failure or Success

Market Failure or Success

The New Debate

Edited by Tyler Cowen and Eric Crampton

Recent years have seen the development of new theories of market failure based on asymmetric information and network effects. According to the new paradigm, we can expect substantial failure in the markets for labor, credit, insurance, software, new technologies and even used cars, to give but a few examples. This volume brings together the key papers on the subject, including classic papers by Joseph Stiglitz, George Akerlof and Paul David. The book provides powerful theoretical and empirical rebuttals challenging the assumptions of these new models and questioning the usual policy conclusions. It goes on to demonstrate how an examination of real markets and careful experimental studies are unable to verify the new theories. New frontiers for research are also suggested.

Chapter 5: Path dependence, its critics and the quest for 'historical economics'

Paul A. David

Subjects: economics and finance, industrial economics

Extract

5. Path dependence, its critics and the quest for Ôhistorical economicsÕ1 Paul A. David 1. INTRODUCTION Contemporary research and writing being undertaken in the genre of evolutionary economics can be viewed as part of a broader, more catholic intellectual movement, one that I would characterize as a quest for historical social science. Yet, a decade after it began to be trendy among economists to say that Ôhistory mattersÕ, some things remain less than entirely clear about the possible meanings attached to that phrase, if indeed it is taken to carry any substantive content at all. For me, at least, the expression Ôhistory mattersÕ does carry a quite precise set of connotations, namely those associated closely with the concept of path dependence. The latter refers to a property of contingent, nonreversible dynamic processes, including a wide array of processes that can properly be described as ÔevolutionaryÕ. The set of ideas associated with path dependence consquently must occupy a central place in the future, historical social science that economics should become. However, by now you may well have begun to wonder whether the matter of history mattering really has been greatly clarified by my tying it to a second catchy expression that, unfortunately like the first, has come to be invoked more frequently than it is defined. What is Ôpath dependenceÕ anyway? Does it have a meaning more precise than the slogan: Ôhistory mattersÕ? Is it about Ôthe Economics of QWERTYÕ or about something more general? If we were to conduct...

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