Law Commons^™

Waiting For Technology: Path Dependence As A Random Walk, James Bessen

Faculty Scholarship

The role of historical accident in technology selection has been difficult to measure. This paper develops a quantifiable model for a basic and widely applicable form of path dependence: the random walk. This real options model is applied to the transition in British cotton spinning at the beginning of the century.

In contrast to neoclassical models based on simple net present value calculations, when investment is irreversible, firms may choose to wait rather than to invest in a superior new technology. The magnitude and effect of this option to wait can be calculated. British spinning firms waited significantly before adopting …