The theory of path dependence provides important claims to explain institutional development, relating to the roles of self-reinforcing process called 'increasing returns' since the theory is based on insights from economics. Countries remain locked-in onto a given trajectory. Reversals are possible only due to exogenous shocks. Path dependence has been criticized because it provides an overly static view of the world and for its poor treatment of institutional change. The thesis seeks to remedy these shortcomings and presents a case study based on increasing returns and institutional change. It asks whether increasing returns affect institutional reform and, if so, how and why. The case study proposed concerns the trajectory of Italian telecommunications institutions between 1979 and 2007. The trajectory of British telecommunications institutions is used as a benchmark to offer a structured comparison. In answer to the research question, the thesis argues that, between 1979 and 1992, there were increasing returns arising out of the relationships between telecommunications providers and elected politicians. These increasing returns contributed to the failure of proposals for reform, thus confirming that increasing returns keep countries on a steady trajectory. But, between 1992 and 1997 remarkable reforms took place. The thesis shows that new institutions were designed with a view to 'cut off' the opportunities for increasing returns to arise, thus indicating that increasing returns can contribute to institutional reform too. The new institutional trajectory of Italian telecommunications since 1997 continues to be shaped by increasing returns through a complex pattern of reactions and counter reactions by elected politicians. Thus, the thesis makes a contribution to path dependence insofar as it demonstrates that increasing returns can also bring institutional change. New paths can arise without exogenous shocks. In addition, the thesis' findings illustrate that path dependence needs to specify the relationships between increasing returns and actors
