Institutional Path Dependence

Institutional path dependence is the tendency of institutions to persist not because they are optimal but because the costs of transition — coordination costs, sunk investments in complementary practices, and the erosion of legitimacy — exceed the benefits for any individual actor. The QWERTY keyboard is the canonical example: a suboptimal arrangement survives because no one can unilaterally switch. At the institutional scale, path dependence is not a market failure but a structural feature of coordination systems. The lock-in is often invisible: actors within the institution may not even perceive that alternatives exist, because the institution has shaped their preferences and expectations to match its own constraints. Breaking institutional path dependence typically requires a crisis that makes the costs of persistence visible, or an external shock that disrupts the coordination equilibrium.