Technology Transfer

  • T. V. S. Ramamohan Rao


Information asymmetry and adverse selection are intrinsic to technology transfer across national boundaries. The MNCs therefore offer informal knowledge in the use of technology, in addition to formal technological details, to their joint venture partners. They also share in the capital investments to elicit greater commitment. Theoretical explanation of the channels through which such sharing affects the contract parameters is however inadequate. In particular, the existing models are mostly deterministic and do not account for hidden action on the part of the foreign firms and the associated uncertainty. The principal agent model offers a more suitable framework for analysis. Utilizing the framework of the principal agent model, this study argues that such policies reduce the variance associated with the risk and thereby neutralize deficiencies due to information asymmetry. From a strategic management perspective, this conclusion suggests that MNC policies directed to assessing and reducing overall environmental uncertainties, especially those related to firms in the industry and government policies, will be superior to the provision of firm-specific informal knowledge.


Risk Aversion Information Asymmetry Foreign Country Variable Cost Skill Level 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Al-Saadon Y, Das SP (1996) Host-country policy, transfer pricing and ownership distribution in international joint ventures: a theoretical analysis. J Ind Organ 14:345–364CrossRefGoogle Scholar
  2. Arora A (1996) Contracting for tacit knowledge: the provision of technical services in technology licensing contracts. J Dev Econ 50:233–256CrossRefGoogle Scholar
  3. Brickley JA (2002) Royalty rates and upfront fees in share contracts: evidence from franchising. J Law Econ Organ 18:511–535CrossRefGoogle Scholar
  4. Cai H (2003) A theory of joint asset ownership. Rand J Econ 34:63–77CrossRefGoogle Scholar
  5. Chen SFS, Hennert JF (2002) Japanese Investor’s choice of joint ventures versus wholly-owned subsidiaries in the U.S.: the role of market barriers and firm capabilities. J Int Bus Stud 33:1–18Google Scholar
  6. Chishlom DC (1997) Profit-sharing versus fixed-payment contracts: evidence from the motion pictures industry. J Law Econ Organ 13:169–201CrossRefGoogle Scholar
  7. Das SP (1998) On the choice of international joint ventures: the role of policy moral hazard. Policy Reform 2:135–150CrossRefGoogle Scholar
  8. Desai MA, Foley CF, Hines JR (2001) International joint ventures and the boundaries of the firm. Available at
  9. Gomes-Casseres B (1989) Ownership structures of foreign subsidiaries. J Econ Behav Organ 11:1–25CrossRefGoogle Scholar
  10. Gomes-Casseres B (1990) Firm ownership preferences and host government restrictions: an integrated approach. J Int Bus Stud 25:1–22CrossRefGoogle Scholar
  11. Kaufman PJ, Lafontaine F (1994) Costs of control: the sources of economic rents for McDonald’s franchisees. J Law Econ 37:417–454CrossRefGoogle Scholar
  12. Kawasaki S, McMillan J (1987) The design of contracts: evidence from Japanese subcontracting. J Jpn Int Econ 1:327–349CrossRefGoogle Scholar
  13. Pan Y, Li X (2000) Joint venture formation of very large multinational firms. J Int Bus Stud 31:179–189CrossRefGoogle Scholar
  14. Svejnar J, Smith SC (1984) The economics of joint ventures in less developed countries. Q J Econ 99:149–167CrossRefGoogle Scholar

Copyright information

© Springer India 2016

Authors and Affiliations

  • T. V. S. Ramamohan Rao
    • 1
  1. 1.Indian Institute of Technology KanpurKanpurIndia

Personalised recommendations