Economics of Business Learning: The Need for Broader Perspectives in Managerial Economics

While most textbooks in managerial economics now give some coverage to business learning, and this is to be welcomed, their coverage of business learning is limited to a consideration of increases in productivity or cost reductions. Supply-side bias exists. The coverage of leading texts is reviewed. It is found that no attention is given to the underlying sources of business learning nor to phases of such learning. The ‘start-up’ phase, for example, is not specifically mentioned. Connections with productivity progress are not well explored and the possibility that business learning may depend on the duration of learning as well as the cumulative output of a business is not considered. The duration of learning is treated as an important variable in learning models developed in this paper. These models make it easier to distinguish between effects of learning on productivity or costs, and scale economies. It is also argued that more attention should be given to learning patterns of existing businesses for a change of their technique or major alteration of their product. Models, some of which involve a degree of ‘lock-in’ to existing techniques, are outlined for this purpose. In addition, other neglected microeconomic aspects of learning are considered. Lack of attention in managerial economics to learning about markets is seen as a grave shortcoming. More attention ought to be given to the alternative strategies available to a business for learning and aspects of motivation and activation for learning should not be neglected. It is then observed that the theory of optimal transfer pricing in multi-divisional firms makes no allowance for learning by the divisions. If learning is important, this is a further shortcoming