A TRANSACTION COST ANALYSIS OF EXPERIENTIAL. LEARNING Developments In Business Simulation & Experiential Exercises, Volume 17, 1990 189 A TRANSACTION COST ANALYSIS OF EXPERIENTIAL. LEARNING James W. Gentry, University of Nebraska-Lincoln Jack Schibrowsky, University of Nevada-Las Vegas ABSTRACT The paper briefly reviews Transaction Cost Analysis (Williamson 1975, 1981) and then discusses the insight which the theoretical framework has for the acceptance of experiential approaches by both instructors and students. INTRODUCTION Williamson (1975, 1981) describes Transaction Cost Analysis as an interdisciplinary approach to the study of the mode of organization best suited to facilitate effective and efficient exchanges. It provides critical insight into the exchange by focusing on the transaction as the basis of analysis rather than the final product or commodity. It also provides a framework for analyzing the dimensions of the transaction. Education represents an important area of exchange, though significantly different from the other areas analyzed previously using the transaction cost perspective. THE DIMENSIONS OF THE TRANSACTION Williamson (1981) states that the critical dimensions for describing and analyzing transactions are (1) information impactedness, (2) the frequency of the exchange, and (3) the degree to which durable, transaction-specific investments are required to realize least cost supply. Given space constraints, only the third dimension, which Williamson states is the most important one for describing transactions, will be discussed. This dimension is concerned with the question of how specialized investments are to a particular transaction. Items that are unspecialized among users pose few hazards, since buyers (students) In these circumstances can easily turn to alternative sources (instructors) and suppliers (instructors) can sell output intended for one buyer to other buyers without difficulty. Thus the lecture/test mode of teaching will minimize costs for both parties in most situations. The instructor can transfer the materials from semester to semester to unseen generations of students; students are not required to make time investments beyond reading, attending class and taking notes, and preparing for exams. The prevalence of the traditional mode of teaching despite technological and conceptual breakthroughs makes sense from a transaction cost approach; both parties have little reason to seek other alternatives. Given the need for the dissemination of general rather than specific knowledge in introductory courses, transaction cost analysis would even argue that pedagogies requiring greater levels of specific investment (cases, simulation games, experiential exercises, etc.) would not be appropriate. On the other hand, as the nature of courses becomes more specific in senior level and graduate elective courses, the student may well expect to make specific investments. Extension courses which are to have a firm-specific orientation require greater compensation to the instructor than those which can be taken on the road. Asset specificity can arise in any of three ways: site specificity, physical asset specificity, and human asset specificity. The most insightful aspect of the specificity dimension from a pedagogical perspective is that of human asset specificity. Consider the textbook decision. One approach to minimizing costs on the part of the instructor is to fight for the retention of the text, which has been used forever. An alternative approach is to become “textbook independent” by relying on the text only to a limited degree and focusing on one’s aging notes. The use of experiential learning pedagogies requires the investment of specific human capital on the part of both instructors and students. Case preparation is time consuming for both parties, and case grading is one of the most mind- numbing experience faced by faculty. Unless the faculty is somewhat opportunistic and foists the grading off on a graduate student (or, even worse, does not provide feedback of any sort), the grading costs are hard to circumvent. On the other hand, the instructor can minimize case preparation time by reusing cases time and time again. Similarly, game switching and exercise switching are somewhat infrequent due to the high start-up costs involved. When the student’s perspective is considered, it is understandable that many students’ initial reaction to the use of games, cases, or semester-long projects is negative. To the extent that the investments are of a content-specific rather than process-specific nature, the students may well be rational and not lazy. If they are required to invest in specific assets which are not easily translatable to the types of situations which they can expect to encounter in the next ten years, they will seek to minimize the investments as best as possible. To the extent that the process involved is generalizable (even though the content may not be), the specific investments may be justifiable. Those students who are not committed to a particular profession obviously should not be encouraged to become involved in courses requiring specificity. The first two years of college may be relatively uninteresting to most students, but the broad educational base acquired should increase one’s ability to seek alternative suppliers (in this case, different majors). The rationale behind the broad-based MBA as opposed to a more specific MS program is also justifiable to those students who are not highly committed to one specific functional area. REFERENCES Williamson, Oliver E. (1975), Markets and Hierarchies, New York: Free Press. Williamson, Oliver E. (1981), “The Economics of Organization: The Transaction Cost Approach,” American Journal of Sociology, 87 (November), 548- 577. Table of Contents Volume 17, 1990 The Impact of Decision Support Systems on the Effectiveness of Small Group Decisions - Revisited The Relationship Between Financial Performance and Other Measures of Learning on a Simulation Exercise Use and Effectiveness of an Analogy-Based Expert System Suggestions for Computerized Business Authors Dealing with Power: An Experiential Exercise Using Movie and Personal Diary Analysis Techniques A Model for Developing Student Skills and Assessing Outcomes Through Outdoor Training Computer-Aided Exercises Versus Workbook Exercises as Learning Facilitator in the Principles of Marketing Course An Exposition of Guilford's Si Model as a Means of Diagnosing and Generating Pedagogical Strategies in Collegiate Business Education Formal Planning and Simulation Team Performance: A Cross Sectional Approach Cases: Real Organizations in Real Time in the Classroom An Empirical Investigation of the Internal Validity of Marketing Simulation Game An Empirical Evaluation of the Pedagogical Value of Playing a Simulation Game in a Principles of Marketing Course Factors Affecting Effective Teaching of Strategic Planning: Some Preliminary Evidence An Experiential Exercise for Learning About the Relationship Between Organizational Form & the Project Management Process Accounting Communication Skills can be Taught in the Auditing Course Modeling Cost Functions in Computerized Business Simulation: An Application of Duality Theory and Sheppard's Lemma A Life Cycle Analysis of Decision Making for a Strategic Management Team What's the Problem? A Dynamic Model for Teaching Problem Solving Skills Experientially International Currency Fluctuations: Money$im, A Simulation Superstores: A Specialized Retailing Simulation Within a Specialized Marketing Curriculum Factors Affecting Student Perceptions of Learning in a Business Policy Game VC + EL = VL The Name Game: An Experiential Exercise in Intergroup Relations The Effects of Experiential Accounting Work Experience on Student Performance in Intermediate Accounting Courses The Results of Using the Experiential Activity Group Performance Evaluation in a Business Policy Setting Using a Legal Database to Describe the Legal Environment of Marketing (and Business) Matching Environmental Uncertainty and Organizational Configuration An Instructional Computer Simulation of Tampering in QC Executive Evaluation of Student Learning in the Looking Glass Simulation Group Personality Composition and Total Enterprise Simulation Performance An Expert System for Selecting Analytical Techniques for Analyzing Marketing Research Data Effects of Cognitive Styles on Responses in an In-Basket Simulation A Psychometric Analysis of Kolb's Revised Learning Style-Inventory Selecting and Developing Experiential Exercises Using Movies Application of a Real-World Strategic Management Model in the Classroom Demand Equations which Include Product Attributes Consumption as the Objective in Computer-Scored Total Enterprise Simulations The Effects of Decision Format and Evaluation on Simulation Performance, Decision Time, and Team Cohesion The Effects of Computer Related Assignments on Student Performance in Business Administration The Money Game: A Dynamic Simulation Including Random Shocks for Money and Banking Courses Methods for Evaluating Performance on Business Simulations: A Survey The Effects of Synergogy on the Policy Course: Significant Improvements in Student Learning and Teacher Evaluation Conditions and Outcomes of Trust in a Two-Person Bargaining Exercise Bankgame Enhancing Computer Business Simulation with the Use of VGA Graphics An Experiential Approach to Entrepreneurship An Advanced Simulation Method (ASM) for Multiple Objective Problems The Influence of Experiential learning Techniques on Student Recognition of Non-Primary Learning Styles Negotiating Mergers and Acquisitions: A Cocktail Napkin Approach Identification of Unintended Effects in Experiential Laboratory Exercises An Experimental Comparison of Paper and Pencil and Computer Aided Decision Support Tools Porting a Simulation from the IBM World to the Macintosh World A Transaction Cost Analysis of Experiential Learning The Development of Experiential Exercises for Courses in Entrepreneurship and Small Business Management The Assessment Center as and Experiential Classroom Exercise Pricing Strategy Algorithms for Playing Business Simulations Organizational Structures for International Operations: An Experiential Activity Simulation Emphasis in the Business School Capstone Course An Integrated Approach to Computerizing the Business Curriculum Cross-Cultural Business Negotiations Exercise Organizational Socialization and Gender Differences in Students at Work Understanding Student Work Experience: A Content-Analytic Approach Introducing Executive MBA Programs with Management Games An Analysis of Improvement in Business Decision Outcome with Sequential Use of Two Simulation Games Teaching Business Policy Utilizing Mass Lecture and Individual Case Labs Potholes Along the Road to Evaluating Learning Outcomes: The Case of Outdoor Management Training Experiential Learning for Interior Design Students: Using CADD, Lotus 1-2-3, and Wordperfect Cognitive Learning Using a Computer-Based, Qualitative Interactive Business Simulation Sex Discrimination: Does the Woman get the Job or Does the Best Man Win? A Search for Visual Aids to Support Experiential Learning Through the 1990's An Experimental Analysis fo the Effectiveness of Student Role-Playing in Sales Training How to Have Students Learn from their Term Projects Self-Evaluation Exercise (SEE): An Assessment of Class Contribution A Study of the Influence of Team Formation on Attitudes and Performance in Management Games A Hardware Based CIM Simulation Laboratory Model Test Substance Abuse in Organizations Micro Computer Training Models Teaching Forecasting, Cash Budgeting and Inventory Model Building Using SBTools A Comparison of the Effects of Experiential Learning Activities and Traditional Lecture Classes An Adjunct Writing Instruction Assistant, The Computer; With an Illustration Classroom Software for ABC Analysis Utilizing Information Processing Technology to Enhance the Business Policy Simulation Experience Progressive Cases Realistic Job Previews Vs. Traditional Job Previews: Experiencing the Differences and Understanding the Consequences Investment Analysis Using the Pragmatic Multiplier Approach A Computer Simulation Interface for Competitive and Firm Analysis Self-Assessment of Ethical Decision Making Predispositions Preparing Managers for Overseas Assignments An Inquiry into Japanese Marketing: Workshop on Teaching Japanese Marketing The Performance Appraisal Feedback Interview: A Role Play for Human Resources Management Teaching Counselor Selling techniques Using Experiential Techniques to Teach International Topics International Management Simulation Gaming: Current Status and Future Developments A Realism Comparison of Simulation Technologies/Methodologies A Time-Efficient Game to Illustrate Concepts Taught in Management Courses and Management Development Programs Teaching the Management of Technology The Concept of Face and the Applicability of Experiential Exercises in an Oriental Culture's