Towards a Learning Based Model of Transactions

The present chapter explores the possibility of a model which represents processes of search and evaluation of transaction partners and investment in transaction relations, from the perspective of learning, based on a constructivist theory of knowledge.

Abstract

Following an earlier argument for the development of a dynamic, learning based theory of transactions (Nooteboom, 1992a), the present chapter explores the possibility of a model which represents processes of search and evaluation of transaction partners and investment in transaction relations, from the perspective of learning. The focus is on relations between industrial users of inputs and their sources. Epistemologically, the model is based on a constructivist theory of knowledge. In economics, this yields the concept of “external economy of cognitive scope,” which implies that learning, or dynamic rather than static efficiency, is a crucial dimension of transactions. The aim of the analysis ultimately is to arrive at a simulation model in which the dynamics of search and learning in the context of transactions can be further explored. A tentative specification is given of a model which represents search as the reduction of “cognitive distance”, modeled as a distance in Euclidean space. Investment in reduced cognitive distance between a user and a supplier yields the benefit of improved perception by the user of the supplier’s competence and of the user’s own needs, improved perception by the supplier of the user’s needs, and improved efficiency of transaction between user and source. However, it also yields an increased risk of spill-over of sensitive information to competitors, through the transaction partner, in an extended network of relations. The model reflects the idea that reducing cognitive distance to zero may be inferior to reducing cognitive distance less but with respect to a greater number of partners: beyond some point of proximity, more diversity of learning can be worth more than further accuracy of learning.