What Is Path Dependence?

Path dependence (Path-Dependence), also translated as path dependency, its specific meaning is that the technological evolution or institutional changes in human society are similar to inertia in physics, that is, once entering a path (whether Good "or" bad ") may depend on this path. Once people make a certain choice, it is like going on a road of no return. The force of inertia will continuously strengthen this choice and make you unable to get out easily. The first to make "path dependence" theory famous is Douglas North. Douglas North won the Nobel Prize in Economics in 1993 for successfully explaining the evolution of economic systems with "path dependence" theory.

Path dependence

Path dependence means that once people choose a system, due to

I. Technology evolution

Path dependence theory is obviously of practical significance to countries in the process of economic system transformation. Professor Wu Jinglian pointed out that China is going through a great era of reform. Reform, or the transition from a planned economy to a market economy, is a major process of institutional change. The whole process has the characteristics of path dependence.

First, the initial system choice will provide the stimulation and inertia to strengthen the existing system, because it is easier to move forward along the original system change path and established direction than to find another path;

Second, after a system is formed, pressure groups with vested interests in the existing system will be formed. They seek to consolidate existing systems and hinder further change, even if the new system is more effective than the existing one. Even if they accept further reforms for some reason, they will seek to make the changes conducive to consolidating and expanding their vested interests. Thus, the initial reforms tended to define the scope for subsequent reforms. The success of the reform depends not only on the subjective desires of the reformers and the established target model, but also on the path chosen in the beginning.

Therefore, when we make any reform decision, we must be careful not only to consider the direct effect of the decision to be taken, but also to study its long-term impact; we must always study whether the reform has taken an incorrect path. In order to correct the path deviation, we must take measures to correct it as soon as possible, and pull him back to the correct track, so as to avoid the situation of accumulated difficulties. In fact, the problem of path dependence on inefficient institutions has emerged, which is mainly due to the irregularities in the early reforms and incomplete reform measures.