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.
This is a preview of subscription content, log in to check access
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
Arora A (1996) Contracting for tacit knowledge: the provision of technical services in technology licensing contracts. J Dev Econ 50:233–256CrossRefGoogle Scholar
Brickley JA (2002) Royalty rates and upfront fees in share contracts: evidence from franchising. J Law Econ Organ 18:511–535CrossRefGoogle Scholar
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
Chishlom DC (1997) Profit-sharing versus fixed-payment contracts: evidence from the motion pictures industry. J Law Econ Organ 13:169–201CrossRefGoogle Scholar
Das SP (1998) On the choice of international joint ventures: the role of policy moral hazard. Policy Reform 2:135–150CrossRefGoogle Scholar