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International technology transfer with an information asymmetry and endogenous research and development

University of British Columbia

This thesis developed a partial equilibrium model of international technology transfer in which the extent of technological change and the mode of technology transfer were endogenous. This endogeneity was obtained by explicitly considering the problem faced by a monopolist that was trying to lower production costs by undertaking research and development and was trying to maximise global profit by transferring technology abroad. The modes of transfer considered were (1) the export of goods, (2) production abroad in a wholly owned subsidiary, and (3) licensing a foreign producer. A fixed cost was assumed to be associated with subsidiary production while transfer via license was assumed to involve an information asymmetry. The interaction of the fixed cost, the information asymmetry, and convex cost functions at home and abroad determined which mode of transfer was optimal. Initially it was assumed that research and development resulted in either a high or low cost technology and that license contracts were characterised by a market share restriction and a lump sum payment. Some results that emerged from the analysis of the transfer decision were, that licensing always dominated the export of goods and the high cost technology was always licensed. The welfare implications of the home country banning technology transfer via license or subsidiary were derived. In general, the welfare effects were ambiguous depending on the interaction of a profit, price, and research and development effect. The foreign country policies that were considered also had ambiguous welfare effects. Although ambiguous welfare results are disappointing, the model does highlight important welfare effects that have not been formalised in previous work. A number of extensions to the basic model were considered. The first was increasing the number of possible technology types, and the second was including per unit royalties in license contracts. Under both extensions ambiguous welfare results were still obtained. The third and final extension involved eliminating market share restrictions from license contracts. With complete information it was shown that the owner of the new technology may license a potential competitor. The solution of the incomplete information problem is a proposed area of future research.

Text

2010-10-18

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http://hdl.handle.net/2429/29321

Economics

University of British Columbia

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