A crucial condition is the implied state of knowledge that occurs when choices are made. In our view, some of the confusion surrounding path dependence has resulted from a failure to distinguish among these types of path dependence. We show that the common cases of path dependence, the ones that cause almost everyone to agree that path dependence exists, in fact, do not pose any counter to the neoclassical paradigm. Only a particularly strong form of path dependence poses such a counter, and we demonstrate that the conditions required for this form of path dependence are quite stringent. In all of this, we make no assertion that durability is unimportant in economics.
Durability is important.
The first two forms of path dependence that we identify, the weaker forms, constitute simple recognition that some things are durable. We also note that there are important durabilities, such as institutions and standards, that transcend the simple durabilities of individual capital goods. But we also contend that economics has always recognized the importance of these durabilities, and that much of the current excitement around path dependence has to do with strong-form claims that path dependence is a new kind of market failure. The JLEO article offers documentation of these claims. Additionally, any garden variety form of increasing returns can lead to the same results as occur in the set of models claiming to demonstrate path dependence.