New Horizons in Institutional and Evolutionary Economics series
Edited by Lars Magnusson and Jan Ottosson
Chapter 8: Can Path Dependence Explain Institutional Change? Two Approaches Applied to Welfare State Reform
1 Bernhard Ebbinghaus INTRODUCTION Over the past two decades, path dependence has become an increasingly popular concept in institutional theories in economics and other social sciences. Indeed, it has developed into a common ‘short hand’ to indicate that the past shapes the future – in short, history matters. However, upon closer analysis, we find two distinctly different interpretations of path dependence that I would like to summarize in two metaphors. One common image is the unplanned ‘trodden trail’ that emerges through the subsequent repeated use by others of a path spontaneously chosen by an individual. A different illustration is the ‘road juncture’, the branching point at which a person needs to choose one of the available pathways in order to continue the journey. The path-dependence concept thus subsumes two markedly different approaches to understand historical sequencing. The two images of the ‘trodden trail’ and the ‘road juncture’ represent different social processes that in my view must be distinguished analytically: a persistent diffusion path and branching pathways. The first model stresses the spontaneous evolution of an institution and its subsequent long-term entrenchment; the second view looks at the interdependent sequence of events that structure the alternatives for future institutional changes. Nevertheless, common to both approaches is the key idea that in a sequence of events, the latter decisions are not (entirely) independent from those that occurred in the past. In the language of probability theory, this sequential contingency is called path dependence. Path dependence results from non-linear self-reinforcing processes – in economic terms,...
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