Information Specificity and Environmental Scanning: An Economic Perspective

This paper addresses two questions. First, how does an organization allocate its environmental scanning resources among all the potential sources of information in the environment? Second, how does an organization allocate responsibility for acquiring environmental information? Specifically, when does an organization choose to monitor an environmental source within its hierarchy, and when does it outsource the task? In the former case, when does the responsibility for acquiring information rest with the ultimate user, and when is it delegated, either to a subordinate or to a central environmental scanning unit? The paper proposes a set of economic arguments to answer these questions. Borrowing from transaction cost theory, the paper develops the concept of information specificity to parallel the idea of asset specificity. Information specificity has two dimensions -- knowledge specificity and time specificity. The paper uses transaction cost theory and agency theory to propose that the information acquisition choices made by managers and organizations are based on the specificity of the desired information. In making its arguments, the paper introduces the notion of cognitive transaction and agency costs to complement the behavioral costs that are the focus of traditional transaction cost and agency theory logic.