Many economic institutions in Australia apply the theory of path dependency in their decision making process. This paper analyzes two institutions that apply this theory in details and how it affects such organizations. One of the organizations is the Water Market Efficiency in Victoria. Water governance in this country has gone through several changes all in a bid to improve on the service delivery (Lubjuhn 2010). In the past, this organization relied so much on the help of the government in providing such services and clean water for residents in Victoria.
The pricing and allocation of irrigation water in the country depended on the markets and the government of Australia. Changes in such organizations impact on path dependency from frameworks in the history of the organization. This institution has had several changes for the last thirty years, which have made it a better organization than it was some three decades ago. The path dependency theory has both negative and positive effects on this particular economic institution in Australia. This theory affects the organization in a positive way because it attributes the change to the path dependency theory.
Previous frameworks of the organization set the path that it uses in making decisions and making certain changes. The path dependency provides a basis and path that an organization can use in the future. This means that the organization makes future decisions with guidance from such frame works in the past. The Water Market Efficiency in Victoria institution used the path dependency theory to make effective decisions that contributed to the change (Lubjuhn 2010). Experts explain that decision makers in the institution based the theory to help them correct mistakes made in the past.
The theory also assists decision makers in the organization to predict future events on the basis of such events in the past. The organization uses this theory because decision makers are afraid of results from the decisions they make. However, the path dependency theory has negative effects on this organization. This is because it creates rigidity especially in the case where this organization introduced new arrangements in the institution. This effect is clear in the present trading restrictions on the Victorian water markets in Australia.
These restrictions are permanent in the water market, but have brought limitations on the gains from water trading in the country. Path dependency in this case limits such gains in water trading in Victoria in the short-run. The second organization that has had effects of the path dependency is the Australian institution in port industry. This institution uses the path dependency theory since the World War II period. Port institutions in this country make decisions using the path dependency since the World War period. The post World War II period for these port institutions in Australia clearly show the impact of using path dependency in decision making.
Just like the Water institution in Victoria, this theory has both positive and negative effect on the port institutions in Australia. Path dependency in this case has more of negative effects than the positive effects on the port institutions in the country. Economic actors in these institutions were afraid of the kind of decisions they made without guidance from the past decisions. The use of path dependency pushed the development of this institution down (McLean 2012).
It created lock-ins which impended strategic flexibility in the ports in Australia. This implies that the efficiency of ports in Australia was brought down because economic actors solely relied on the theory. This did not give room to any changes especially changes brought about by the technological change. Ports in the country continued with the use of old technology, which meant low productivity in the institution.