Description: Please read “The Path of Institutional Change” by Douglass North. This reading could be found in your textbook for this course. Then opine responsibly on the following: 1. How do you understand the relationship between path dependence and increasing returns to an institutional change? 2. How the concept of opportunity cost is relevant to path dependence? Answer: 1. In my perspective, increasing returns is one of the reasons of path dependence. Path dependence means that once the old technologies and institutions have picked a particular path, the new ones that are consistent with the old patterns will win out, even the alternatives are more efficient. The reason of this is increasing returns : 1. Consisting with the old pattern, companies and societies save huge amount of fixed costs to setup a new pattern by using the old ones to produce more and more products, which in return, reduces unit cost and increase profit; 2. As the new technology and institution are consistent with the old ones, people
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