The note on which an entry for the Palgrave Encyclopedia of Strategic Management will draw offers a beginner’s guide to path dependency in technologies and organizations. We address the very meaning of the concept and its centrality in various aspects of economic analysis. We outline the various levels of the economic system where it is observable, its sources, consequences and different formal representations of path dependent processes.path dependence, lock-in, organizations, technologies

Carolina Castaldi

Evita Paraskevopoulou

Giovanni Dosi

English

Research Papers in Economics

1 
 
 
 
 
 
 
 
 
 
 
Path dependence in technologies and organizations:  
A concise guide 
 
 
 
Carolina Castaldi, Giovanni Dosi and Evita Paraskevopoulou 
 
 
 
 
 
 
Working Paper 11.04 
 
 
 
 
 
 
 
 
 
Eindhoven Centre for Innovation Studies (ECIS),  
School of Innovation Sciences, 
Eindhoven University of Technology, The Netherlands 
 2 
 
Path dependence in technologies and organizations: a concise guide 
 
Carolina Castaldi*, Giovanni Dosi** and Evita Paraskevopoulou*** 
 
*School of Innovation Sciences, Eindhoven University of Technology 
C.Castaldi@tue.nl 
 
**LEM, Scuola Superiore Sant’Anna, Pisa and Visiting Professor Friedrich-Schiller-Universitat, Jena, 
gdosi@sssup.it 
 
***Departamento Economia de la Empresa, Universidad Carlos III de Madrid, eparaske@emp.uc3m.es 
 
Abstract 
 
The note on which an entry for the Palgrave Encyclopedia of Strategic Management will 
draw offers a beginner’s guide to path dependency in technologies and organizations. We 
address the very meaning of the concept and its centrality in various aspects of economic 
analysis. We outline the various levels of the economic system where it is observable, its 
sources, consequences and different formal representations of path dependent processes. 
 
Intro 
 
The concept of path dependence captures the idea that history matters. Analytical approaches 
entailing path-dependence stand against the mainstream development of economics as an 
‘ahistorical system of thought’ (David, 2001). The notion is a key one within evolutionary 
economics (Nelson and Winter, 1982) and has found powerful applications to the understanding 
of irreversibilities in technological and organizational change.  Path dependence may be defined 
over a spectrum of phenomena ranging from mere dependence upon initial conditions all the way 
to strong dependence upon a specific unfolding of events (see also the degrees of ‘historicity’ 
defined in David, 2001, Bassanini and Dosi, 2001 and Castaldi and Dosi, 2006).  
 
Levels of observation and sources  
 
Path dependence is observable at various layers of the economic system, ranging from the 
individual up to the aggregate system level.  
 
Individual decision making and learning tend to be  path dependent as soon as decisions are taken 
sequentially over time, reflect uncertainty or imperfect information, depend on local interactions, 
and even more so if one accepts that preferences are endogenous in the first place (Aversi et al, 
1999).  
 
At technology level, path dependence shows up with the persistence and lock in onto particular 
technological choices reinforced by increasing returns in the production or adoption of 
technologies and products, and positive feedbacks and network externalities. Technological 
innovation and diffusion in fact often display dynamic increasing returns unravelling over time 
(Castaldi and Dosi, 2006; Dosi and Nelson, 2010, and more specifically on industrial dynamics, 
Antonelli,1999).  A famous example, out of many, of lock in into a suboptimal technology is the 
QWERTY keyboard supported by the path-dependent reproduction of users’ skills (David, 
1985). Another quite general source of path-dependence entailing positive feedbacks is grounded 
in agglomeration economies, plausibly an important driver of the emergence of industrial districts 
such as Silicon Valley (Krugman, 1991; Kenney and Von Burg, 1999). 
 3 
 
Path dependence is ubiquitous also in the evolution and patterns of decision making of 
organizations. Organizational path dependence has been linked to various factors that explain 
persistence of organizational choices and that emphasize the importance that past events bear for 
the future orientation of organizations (see Sydow, Schreyong and Koch, 2009 for an extensive 
discussion).  Imprinting, idiosyncratic learning and structural inertia (Stinchcombe, 1965; 
Beckman and Burton, 2008; Hannan and Freeman, 1984; Argote, 1999), to mention the most 
obvious ones, are the usual suspect mechanisms leading to path dependent reproduction of 
organizational knowledge and behaviours. This is linked to the ways organizations elicit stored 
information i.e. their ability to remember. The structure and rigidity of organizational memory, as 
well as the processes of interpretation, information retrieval and action formation of 
organizations are fundamental sources of path dependence (Dosi et al., 2011).   
 
The features of selection processes are an important source of path dependence whenever 
evolutionary fitness (i.e. competitiveness of firms, technologies, etc) depends in non-trivial ways 
upon multiple traits. In such cases selection happens on a fitness landscape with multiple local 
maxima that are determined by (possibly random) initial conditions (Levinthal, 1997; Castaldi and 
Dosi, 2006). Organizations typically compete on such complex landscapes and interrelated 
technological and behavioural traits are responsible for path dependent reproduction of 
organizational arrangements (Marengo, 1996, Levinthal,1997 and  2000). Moreover, the link 
between what firms do and the way they are selectively rewarded in the market, is utterly opaque 
for at least three reasons: (i) the complexity of the environments where they operate; (ii) the 
mentioned multiple ‘epistatic correlations’ amongst behavioural and technological traits; and (iii) 
significant lags between organizational actions and performance-revealing feedbacks. In such 
circumstances, path dependence is also likely to be fuelled by behavioural/procedural and 
‘cognitive’ forms of inertia (Tripsas and Gavetti, 2000). At organizational level, failure to account 
for the changes of the environment where an entity operates and persistent reproduction of 
interpretative frameworks and actions lead essentially to cognitive and operational lock-ins (that 
is , competence traps). 
 
In fact these latter properties apply to many other formal organizations (in addition to business 
firms, also public agencies, trade unions, etc.) and to many institutional arrangements, e.g. ethical 
codes, habits of thought, etc. (Dosi, 1995). As argued by David (1994), institutions are a 
fundamental carrier of history. The attractiveness of “doing things the way we know” can often 
act as an obstacle to change and lock individuals, organizations and whole economic systems in 
suboptimal behaviours and problem-solving heuristics. A famous example on the consequences 
of path dependent individual decision making relates to segregation phenomena (Schelling, 1971).  
 
As countries can be characterized by combinations of complementary institutions, path 
dependence also strongly affects national dynamics (see for example the discussion on national 
systems of innovation: Lundvall, 1992 and Nelson, 1993, Kogut, 1993 and the evidence of 
persistence of national specializations). 
 
Note in any case that evolution does not need to equate to progress, as one can identify many 
examples of path dependent dynamics going from better to worse (see the story of Easter Island in 
Diamond, 2005). 
 
 
Escape routes 
 
Tackling with “bad path-dependencies” involves different sorts of remedies with different 
degrees of intentionality. First, de-locking may rely on environmental shocks, on the arrival of 4 
 
new knowledge bases and, consequently, new paradigms. Relatedly, deviant behaviours may 
“autocatalyze” and aggregately account for shifts in the system orientation (Castaldi and Dosi, 
2006). Within organizations path breaking routes include the purposeful loss of memory, changes 
in the organizational structure, increasing “cognitive dissonance” between organizational 
cognitive frames and action repertoire and management and labour turnover (Garud and Karnøe, 
2001; Dosi et al, 2011).      
 
Formal representations 
 
Path-dependent phenomena have been modelled using mathematical tools such as nonlinear 
dynamics and chaos (Brock and Malliaris, 1989; Brock, 1993), stochastic processes such as 
generalized polya urns (Arthur, 1994; Dosi and Kaniovski, 1994), and borrowing models and 
concepts from (evolutionary) biology (e.g. on the dynamics of evolution on fitness landscapes of  
Kauffman, 1989). Moreover, the broad field of complexity has been the fertile ground for multi-
disciplinary research on path dependence (see Frenken, 2006).  
 
  
Open questions 
 
Understanding path dependence is seriously hampered from an empirical point of view by the 
fact that in social sciences one generally observes only one of the many possible histories. Still, 
Gould (1977) already suggested the power of trying to imagine what would remain unchanged if 
“the tape of evolution would be run twice”. The risk is the one of ex-post evolutionary 
rationalizations, but plenty of opportunities are offered by available mathematical and conceptual 
models. A major challenge is the one of conceptualizing hierarchically nested evolutionary 
processes allowing for slowly changing macro institutions which in turn structure faster micro-
dynamics of adaptation.  
 
 
References 
 
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Aversi, R., Dosi, G., Fagiolo, G., Meacci, M., Olivetti, C. (1999), Demand Dynamics with Socially 
Evolving Preferences, Industrial and Corporate Change, 8, pp.353-408 
 
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An evolutionary theory of economic change,

Dynamic Models of Segregation,

National Innovation Systems. A Comparative Analysis,

On &quot;Badly Behaved&quot; Dynamics: Some Applications of Generalized Urn Schemes to Technological and Economic Change,

Path dependence and creation,

Structural inertia and organizational change,

Technology, Entrepreneurship and Path Dependence: Industrial clustering in Silicon Valley and Route 128,

The economics of path –dependence in industrial organization ,

The value and dangers of remembrance in changing worlds: a model of cognitive and operational memory of organizations, LEM Working Paper, in progress Frenken,

When and How Chance and Human Will Can Twist the Arms of Clio, in Garud and Karnoe,

Path dependence in technologies and organizations: a concise guide

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Path dependence in technologies and organizations: a concise guide

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