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Path Dependency

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PPGPortal > Home > Concept Dictionary > P, Q > Path Dependency

Path Dependency

Tendency of a past or traditional practice or preference to continue even if better alternatives are available.

(BusinessDictionary:, accessed 23 December 2013)


Professor Ito Peng (Toronto) has used an analogy to illustrate this important concept, by comparing policy and institutions to a house. Once you build a foundation for a house, it is impossible to fundamentally change the structure. There are constraints on change.


Similarly, there is a structure to policy and it is difficult to make large changes. The longer the policy is in place, the higher the transactional costs. Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant.


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