S. J. Liebowitz and Stephen E. Margolis. 1995. Path Dependence, Lock-In, and History

S. J. Liebowitz and Stephen E. Margolis. 1995. "Path Dependence, Lock-In, and History." Journal of Law, Economics, and Organization 11(1): 205-26.

1. First-degree path dependence- sensitivity to starting points exist but has no implied inefficiency
2. Second-degree path dependence- sensitive dependence on initial conditions and imperfect information leads to outcomes that are regrettable and costly to change. Outcome is not inefficient in any meaningful sense and the paths taken cannot be improved upon given the assumed limitations on knowledge.
3. Third-degree path dependence- sensitive dependence on initial conditions leads to an outcome that is inefficient, but the outcome is remediable.

Some deficiency in information is required for lock-in to an inferior technology to occur. In order for third-degree lock-in to occur, there must be agents who know enough to make correct choices but who fail to take advantage of the implied profit opportunities, and at the same time, adopters who generally know nothing more than the payoff going to the next adopter.

Path dependence literature elevates the importance of a historical chronicle relative to other methods of explanations—outcomes depend critically on insignificant and unpredictable events rather than on underlying conditions such as endowments and technology.