A behavioral model of path dependency: The economics of profitable inefficiency and market failure

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Abstract

In this article, a model of path dependency is developed, grounded in behavioral economics (x-efficiency/efficiency wage theory), where it becomes possible and reasonable to expect a multiplicity of equilibrium solutions to identical economic problems and for the dominant solution to be sub-optimal and inefficient. Unlike in the pioneering work on path dependency by Paul David and Brian Arthur, the sup-optimal outcomes generated in this model do not provide economic agents with exploitable economic opportunities in the context of their particular objective functions. Such opportunities constitute, from the perspective of the conventional wisdom, the Achilles Heel of their work.

Original languageEnglish
Pages (from-to)127-145
Number of pages19
JournalJournal of Socio-Economics
Volume29
Issue number2
DOIs
Publication statusPublished - 2000

Keywords

  • Efficiency wages
  • Market failure
  • Path dependency
  • X-inefficiency

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