Information asymmetry has a pivotal role in determining the nature of contractual arrangements of international joint ventures. In recognition of the risks associated therein, MNCs utilize resources to identify the information pertaining to the supply chain management and/or offer informal knowledge in the use of the technology transferred to their joint venture partners. There is, however, inadequate theoretical explanation of the channels through which such policies affect the choice of contract parameters (in particular, royalty rates) and how they influence the performance of joint ventures. This study argues that such policies reduce the variance associated with information asymmetry and thereby neutralize the deficiencies due to the lack of skills. This enables the MNCs to offer a uniform royalty contract to all their joint venture partners as reported in the empirical literature.
KeywordsRisk Aversion Information Asymmetry Variable Cost Supply Chain Management Skill Level
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