Empirical tests of optimal cognitive distance

Abstract

This article provides empirical tests of the hypothesis of ‘optimal cognitive distance’, proposed by Nooteboom [Nooteboom, B., 1998. Cost, quality and learning based governance of buyer–supplier relations. In: Colombo, M.G. (Ed.), The Changing Boundaries of the Firm. Routledge, London, pp. 187–208; Nooteboom, B., 2000. Learning and Innovation in Organizations and Economies. Oxford University Press, Oxford], in two distinct empirical settings. Variety of cognition, needed for learning, has two dimensions: the number of agents with different cognition, and differences in cognition between them (cognitive distance). The hypothesis is that in interfirm relationships optimal learning entails a trade-off between the advantage of increased cognitive distance for a higher novelty value of a partner's knowledge, and the disadvantage of less mutual understanding. If the value of learning is the mathematical product of novelty value and understandability, it has an inverse U-shaped relation with cognitive distance, with an optimum level that yields maximal value of learning. With auxiliary hypotheses, the hypothesis is tested on interfirm agreements between pharmaceutical companies and biotech companies, as well as on interfirm agreements in ICT industries.