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 ecomic system in which it is observable, its sources, concequences and different formal representations of path dependent processes.Path dependence, lock-in, dynamic increasing returns, organizational inertias

Carolina Castaldi

Evita Paraskevopoulou

Giovanni Dosi

English

Research Papers in Economics

           
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Path dependence in technologies and organizations: a concise guide  
 
Carolina Castaldi*, Giovanni Dosi** and Evita Paraskevopoulou*** 
 
*Utrecht  University,  Department  of  Innovation  Studies,  and  Groningen  Growth  and  Development  Centre, 
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 ecomic system in which it is observable, its 
sources, concequences and different formal representations of path dependent processes.  
 
Keywords:  
Path dependence, lock-in, dynamic increasing returns, organizational inertia 2 
 
 
1.  Introduction 
 
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).  
 
2.  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 levels.  
 
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  the  increasing  returns  in  the  production  or 
adoption of technologies and products, and the 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 of lock in, out of many, 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 (Stinchcobe, 
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 4 
 
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). 
 
3.  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 
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).      
4.  Formal representations 
 
Path-dependent phenomena have been modelled using mathematical tools such as nonlinear 
dynamics and chaos (Brock and Malliaris, 1989), 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).  
  
 5 
 
5.  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 structuring faster micro-dynamics of adaptation.  
 6 
 
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Path dependence in technologies and organizations: a concise guide

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