International Technology Transactions and The Theory of The Firm PDF

International Technology Transactions and the Theory of the Firm
Author(s): W. H. Davidson and Donald G. McFetridge

Source: The Journal of Industrial Economics, Vol. 32, No. 3 (Mar., 1984), pp. 253-264
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2098016
Accessed: 26-06-2016 06:44 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted
digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about
JSTOR, please contact support@jstor.org.
Wiley is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Industrial
Economics
This content downloaded from 159.178.22.27 on Sun, 26 Jun 2016 06:44:24 UTC
All use subject to http://about.jstor.org/terms
THE JOURNAL OF INDUSTRIAL ECONOMICS 0022-I821 $2.00
X'olume XXXII March 1984 No. 3
INTIERNATIONAL TECHNOLOGY TRANSACTIONS

AND THE THEORY OF THE FIRM*
W. H. DAVIDSON AND DONALD G. MCFETRIDGE
I. INTRODUCTION
THE THEORY of the firm, as conceived by Coase [6] and developed by WVil-
liamson ([23], [24], [25], [26]), holds that the firm and the market are
alternative methods of organizing exchange and that the choice between
intrafirm and market exchange will be based on their relative costs. Arrow [2]
has argued that market exchanges of information will be particularly costly
relative to intrafirm exchanges. This insight has been cited by a number of
authors to explain the prominence of multinational firms in high-technology
industries (Caves [5]; Vernon [20]; Teece [I7], [i8]; Buckley and Casson
[3]; Magee [I 2]; Casson [4]; and Dunning [8]).
This paper employs the theory of the firm in an attempt to define more
precisely the circumstances under which it is advantageous to internalize
international transactions involving technology. The hypotheses which
emerge from our analysis are tested using a sample of 1,376 internal and
arm's-length (market) transactions involving high-technology products
carried out by 32 U.S.-based multinational enterprises between 1945 and
1975.1 We find that there are systematic differences in the characteristics of
intrafirm and market technology transactions. These differences are largely
consistent with those implied by the theory of the firm.
II. T'HE CHOICE OF TRANSACTION MODE: IMPLICATION OF THE

THEORY OF THE FIRM
Differences in the respective costs of intrafirm and market transactions are the
result of differences in the incentives of the transacting parties (Williamson
[23, P. I 3], [24, P. 29]; McKean [I5, P. 124]; McManus [I6, P. 344]).
Each party in a market transaction has an incentive to attempt to appropriate
a larger fraction of the gain from trade. Each party will expect the other to use
whatever opportunities are available to turn the terms of trade in their favour.
* This paper is based on research supported by the National Science Foundation and the
Harvard Multinational Enterprise Project. The authors wish to thank Greg Hammett and Luis
Leigh for research assistance anid Keith Acheson, Steven Ferris and Ed Hughes for their advice
anid comments.
I In this paper all transactions betweeni unaffiliated firms are regarded as market transactions.
Two firms are unaffiliated if neither holds more tharn five per cent of the equity of the other. A
transaction is defined as internal if one of the firms involved holds at least 95 per cent of the equitN
of the other. Transactions betweern firms, one of which holds between 5 and 95 per cent of the
equity of the other are not analyzed in this paper. A full descriptiorn of the data can be found in
V'ernoni and Davidson [22] or in Davidson [7].
253
254 W. H. DAVIDSON AND DONALD G. MCFETRIDGE
The participants in an intrafirm transaction have different incentives. The

incomes of firm members will not, in general, depend on the outcomes of
transactions carried out within the firm. As a consequence, the parties in an
intrafirm transaction will have less incentive to engage in activities designed to
redistribute the gains from trade.
While firm membership weakens the relationship between an individual's
income and the outcome of the intrafirm transactions in which he partici-
pates, it also weakens the relationship between his income and his productive
activity-. Individual firm members will therefore find the consumption of
leisure (shirking) and other non-pecuniary benefits less costly in terms of
income foregone than would participants in a market transaction (Alchian
and Demsetz [I, pp. 778-8i]; McManus [i6, pp. 343-45]).
Behaviour of this nature can be reduced by the expenditure of resources to
monitor the activities of firm members. Monitoring will be carried to the point
at which its marginal cost is equal to the marginal output loss it prevents.
Intrafirm exchange will be less costly than market exchange whenever the
value of resources saved by reducing redistributive activity exceeds the sum of
the values of output lost due to shirking (given optimal monitoring) and the
resources devoted to monitoring.
Williamson [24, pp. 21-27]; [25, pp. 248-54] suggests that the extent to
which redistributive activity can be reduced by the internalization of
exchange will be greater: (a) the more costly it is to measure the qualities of
the goods or services involved; (b) the greater is the degree of uncertainty
regarding the environment within which the transaction is to take place; and
(c) the greater is the extent to which the transaction is supported by durable
transaction-specific assets.2
In addition, the net advantage of internalization will decline with the value
of the intrafirm transactions contemplated. The formation of a firm will
involve shirking and monitoring costs regardless of the amount of intrafirm
exchange it facilitates. The smaller are the potential gains from intrafirm
trade, the less likely it is that savings from reduced redistributive activity will
offset losses in output due to shirking and the diversion of resources to monitor-
ing.3
III. DETERMINANTS OF THE MODE OF TECHNOLOGY TRANSFER
The extent to which a technology transaction is likely to be burdened by high

measurement (verification) costs, uncertainty and the need to make
transaction-specific investments will be greater: (a) for newer technologies;
2 In an earlier version of this paper we used the term "irreversible commitments" to describe a
situation in which it is costlN for either or both parties to turn to alternative traders should their
arrangements prove unsatisfactory. For further discussion see Klein, Crawford and Alchian [io,
p. 307] and Williamson [26, pp. i0- 12].
3 McManus [i6, p. 346] deals with the limiting case in which there is no interdependence
among firm members and thus no intrafirm excchange. The formation of a firm will involve
shirking and monitoring costs with no offsetting benefits and will thus be wealth-reducing.
INTERNATIONAL TECHNOLOGY TRANSACTIONS 255
(b) for technologies which represent a more significant advance on the state of
the art; (c) for technologies with fewer previous transfers; (d) for technologies
with fewer and more distant substitutes; and (e) the smaller is the amount of
past transfer activity of the parties involved.
For widely used technologies which are close to "existing practice" it is less
costly to verify assertions regarding their characteristics and there will be less
uncertainty surrounding their application.4 Verification costs and uncertainty
will also be lower if the technology involved is an imitation rather than an
innovation and if either or both parties have a record of past transfer activity
from which inferences of reliability can be drawn.
The extent to which one or both of the transacting parties must make
investments which are specialized to the transaction, and is therefore vulner-
able to the opportunism of the other party, will be greater the newer, more
radical and less widely used is the technology involved.
The advantages of internalization will be less likely to outweigh its costs the
smaller in value and/or the less frequent are the transactions contemplated.5
The transacting parties are less likely to expect the repetition of transfers of
technologies which are distantly related to the transferor's principal line of
business.
The number of transfers which are expected to occur in the future will
increase with the amount of new technology the transferor is expected to
produce. The anticipated flow of new technology should, in turn, be greater
the larger is the fraction of the transferor's resources devoted to scientific
research and development.
The value of a technology, that is, the stream of rents it can command, will
be smaller the closer and the greater in number are the substitutes for it. The
smaller is the value of the stream of rents involved, the less there is to be
gained by reducing the incentive of the transacting parties to redistribute
them, that is, by internalizing the transaction.
Vernon [21, p. 8i] has argued that the post-war period has been character-
ized by increasing international competition in the development of new tech-
nologies. If this were the only secular factor in operation we should observe
that, other things being equal, there is a trend toward market technology
transactions over the sample period.
The relative cost of an intrafirm transfer will also depend on the mode of
transfer which has been adopted in the past. If the transferor already has an
affiliate in the receiving country, the fixed cost of internalization is a sunk cost.
Since it is with the small incremental cost of the internal transfer with which
the market alternative is then compared, the presence of an affiliate increases
the likelihood that subsequent transfers will be internal.
4 See Magee [ 12, pp. 328 29]. Williamson [25, p. 254] has also suggested that the uncertaintx
surrounding a transaction will decline as the industry in which the transacting parties are located
matures.
5 This point has also heen made by Caves B5, p. 7].
W. H. DAVIDSON AND DONALD G. MCFETRIDGE
256
Finally, the mode of transfer chosen will also depend on the characteristics
of the receiving country. We do not discuss these characteristics or test for
their effect in this paper. Instead, we examine and report on a number of
alternative means of holding country effects constant. There include: (I)
employing the past relative frequency of internal transfers to each receiving
country as an additional variable in the model; (2) allowing the intercept
term to vary across countries or groups of countries; and (3) estimating the
model for individual countries, or relatively homogeneous groups of countries.
IV. THE MODEL: ITS SPECIFICATION AND ESTIMATION
The determinants of the probability of internal transfer suggested by the

discussion of Section III are summarized in equation ( ). Variable definitions
together with the expected signs of the partial derivative of the dependent
variable with respect to each independent variable follow.
(I) Pi =f (ti, Ci, Ai, Ti, N.i, li, Bi, Ei, Ri, Fi)
where Pi = probability that the ith transfer will be internal;
ti = year in which the ith transfer is made;
Ci = proportion of transfers to the country receiving the ith transfer
during the preceding five years which have been internal,fc > o;
Ai = age of the technology, in terms of number of years since its U.S.
introduction, at the time of the ith transfer,fA < o;
Ti = number of transfers of the technology prior to the ith transfer,
fT <0;
.i = dummy variable equal to one if the ith transfer is of a technology
which is a radical advance on the state of the art, zero if it is an
incremental advance,fN > o;
Ali = dummy variable equal to one if the ith transfer is of an innova-
tion, zero if it is of an imitation,fM > o;
Bi = dummy variable equal to one if the ith transfer is of a technology
assigned to the same U.S. three digit SIC code as the transferor,
fB > ;
Ei = number of prior transfers made by the firm making the ith transfer,
fE <0;
Ri = R&D: Sales ratio of the form making the ith transfer,fR > o;
Fi = dummy variable equal to one if the firm making the ith transfer
had an affiliate in the receiving country in the year prior to the
transfer, zero otherwise,fF > o.
Since each transaction must fall into either the market or the intrafirm
category, the dependent variable in this model is a binominal random vari-
able, r, which takes on values of zero and one for market and intrafirm
transactions respectively. The probability Pi in equation (i) is thus the expec-
tation of Y conditional on the values of the independent variables. If (I) is

written as a linear function and the ith value of the jth independent variable is
written as Xij, the population regression model is:
J
(2) Yi =. E(Yi) + gi = Pi + gi =E bj Xij + E

j=1
As Goldberger [9, p. 249] and others have noted, (2) does not constrain Pi
to lie between zero and one. It is also characterized by heteroskedastic
residuals.
An alternative which constrains Pi to lie between zero and one and which
stabilizes the variance of ;i is to write (2) as a logistic function. Thus
(3) E(Yi) = Pi = I/I + exp - E cjxij)]
The c values are then obtained by the maximum likelihood method. To assist
in the interpretation of the cj reported in Section V, we note that by differenti-
ating (3) with respect to Xj and substituting we obtain
dP
(4) = cj-PtI - P)
dXj
The change in the probability of an internal transfer resulting from a given
change in Xj is a function of cj and the probability of internal transfer itself.
The marginal effect of Xj on P can be calculated for any given P. It reaches its
maximum value at P = 0.5.
If, as is often the case in this study, the Xj are in logarithmic form, differen-
tiating (3) with respect to Xj and substituting yields
dP
(5) Xi dX == cj PI I-P)
dXj
In this case the change in P resulting from a given percentage change in Xi
is a function of P and reaches its maximum at P = 0.5. A measure of the
maximum effect on P of a given percentage change in Xj can be obtained by
multiplying reported c values by 0.25.
Finally, the likely changes (or percentage changes) in the Xj will differ for
j = I,..., J. To indicate the effect on P of equally likely changes in the Xj we
report estimates of the standardized coefficients of the Xj which we refer to as
dj coefficients. The coefficient dj,j = I, .. . , J can be interpreted as the effect
on P of a one standard deviation change in Xj, j = I, ..., J evaluated at
P = 0.5.
Logit estimates of the cj were obtained from a sample of 1,376 international
transfers of 221 significant new product innovations and 359 imitations under-
taken subsequent to U.S. introduction by 32 U.S.-based multinationals
during the period I945-75*6 The 32 firms from which new product transfer
information was obtained are listed in Vernon and Davidson [22, pp. 83-86]
and in Davidson [7, pp. 206-7]. Significant innovations and imitations are
those which met the minimum standards for technological novelty and accu-
mulated U.S. sales described in Davidson [7, p. i6].
V. EMPIRICAL RESULTS AND THEIR INTERPRETATION
Five sets of estimates of the cj in equation (3) are reported in Table I. The first
set is based on the full sample with all continuous independent variables in
logarithmic form and employs the fraction of internal transfers during the
preceding five years to the country receiving the ith transfer to standardize for
country effects.
The second set differs from the first only in that there is no logarithmic
transformation of any of the independent variables. The third set is the same
as the first except that the existing affiliate variable, B, is omitted.
The fourth set differs from the first in the manner in which country charac-
teristics are held constant. In this case estimates are based on a subsample
which includes only transfers to Canada and western Europe. The intercept is
allowed to differ between Canada and western Europe and this difference is
reflected in the coefficient of the Canada dummy, CDA.
The fifth set differs from the fourth in that it is estimated using a subsample
which includes all transfers to non-communist countries. In this case the
intercept term is allowed to take on a different value for each of three coun-
tries or groups of countries, Canada, western Europe and the balance of the
non-communist world. The differences between the Canada and western
Europe intercepts is given by the coefficient of the Canada dummy, CDA,
while the difference between the respective intercepts of western Europe and
the balance of the non-communist world is given by the coefficient of the rest
of the world dummy, ROW.
The results are generally robust with respect to changes in specification and
sample size.7 Only one variable, the innovation/imitation dummy, Al, takes
on a sign which is not in accord with our theoretical expectations. All other
6 Estimates of the parameters of the logit model were obtainied usinig the AQD package at
Harvard Business School. See Schlaifer [ig. pp. 232 36].
The results of a classification analysis performed using Equation ( I), Table I are:
Predicted
Actual .M1arket Intrafirm Total

Market 293 179 472
Intrafirm 107 797 904
Total 400 976 1376
Percentage correctlN classified = 79.2

A transaction is assigned to the "intrafirm" category if P > 0.5
coefficient estimates are not only of the expected sign but, with the exception
of the coefficients of age and the radical/incremental dummy in equation (4),
also are different from zero at significance levels under 5 per cent (one tail
test) .
The results imply, first, that the possibility that a given transaction will be
internal depends on the characteristics of the receiving country. Specifically,
equations (i) ... (3) imply that the probability that the ith transfer will be
internal increases with the fraction of previous transfers by all sample firms to
the receiving country which were internal. Equations (4) and (5) imply that,
other things being equal, the probability of an internal transfer is greater in
the case of Canada than Western Europe and greater in the case of Western
Europe than in the balance of the non-communist world.
Second, the probability of an internal transfer is greater if the transferor
had an affiliate in the receiving country in the year prior to the transfer. When
the existing affiliate variable is omitted (column 3, Table I), explained varia-
tion falls but remains statistically significant. Inferences regarding the other
parameters of the model remain unchanged. Thus, while the existing affiliate
variable is clearly important to the model, it does not appear to be the source
of any misleading inferences as to the marginal effects of the other indepen-
dent variables.8
Third, the probability of internal transfer is higher the newer and more
radical is a technology and the fewer the occasions upon which it has been
transferred. These results confirm those obtained in other investigations of the
technology transfer process. A negative relationship between the age of a
technology and the probability of internal transfer has been observed in a
bivariate context by Mansfield and Romeo [i3, pp. 738-39].9 Wilson [27, p.
177] found a negative relationship between product complexity and the pro-
pensity to engage in arm's-length licensing arrangements. Finally, Teece [I 7,
p. 84] found that the cost advantage of an internal over a market transaction
was greater for technologies which had no prior commercial application.
Changes in prior transfer activity have a greater effect on the probability of
internal transfer than do changes in the age of a techiiology. In the case of
equation ( I), Table I, for example, the d estimates imply that, beginning from
P = 0.5, a one standard deviation increase in the logarithm of age reduced P
by o.og while a one standard deviation increase in the logarithm of the
number of prior transfers reduced P by o. 14.
A fourth inference which may be drawn from our results is that, although
the relationship is statistically weak, an imitation is more likely than an
innovation to be transferred internally. The argument that verification costs
will be lowered and that there will be less scope for opportunistic behaviour
during the transfer of imitations is not supported by these results.
Fifth, the probability that a transfer will be internalized is greater the larger
8 The percentage of transactions classified correctly falls to 76.2.

9 A similar finding is reported by Mansfield, Romeo and WNagner [I4, pp. 54- 55].
TABLE I
ESTIMATES OF EQUATION (3)
Equation IEquation Equation 3 Equ
Variable c d d
const. -0.1824 - 3.65 0.4332 i.8

(0.7912) (o.6oo) (0.7529) (i.
t 0.2246 0.587 0.1925 0.503 0.1910 0.534 0
(0.0574) (0.0559) (0.0551) (0.0
- 0.0042 - 0.460 -0.0034 -0.373 -0.0030 - 0.351 -
(0.0013) (0.0014) (0.0012) (0. 0
C 1 .679 0.20
(0.226)
In C 2.528 0.224 3.458 0.327
(0.316) (0.295)
A -0.0267 -0.078
(0.01I47)
In (A + I) -0.2641 -0.091 -0.3268 -0.120 -0
(0. 1364) (0.1303) (0
T -0.1023 0.172
(0.0209)
In T 0.4235 -0.143 -0.4882 -0.177 -0
(0.0993) (0.0950) (0
N 0.3131 o.o6o 0.4154 0.079 0.1754 0.036 0.39
(0.1565) (0.1546) (0.1483) (0.223
M -0.2017 -0.041 -0.1i675 -0.034 -0.i644 -0.036 -0.47
(o. 1466) (o. 1473) (o. 1397) (0.207
B i.1i96 0.237 1.185 0.235 i.o6i 0.225 1.37
(o. i6o) (0.158) (0.154) (0.24
E -0.0122 -0.150
(0.0033)
In (E + i) -0.3321 -0.171 -0.3007 -o.1i65 -0.2
(o.o86o) (0.0819) (0.1
R 18.25 0.123
(4.90)
InR 0.E57q0 0.135 0.5828 0.145 1.038
(0.1284) (0.1212) (o. i86
0.298 1.45
F 1.587 0.298 1-8
(o. i67) (o. i68) - - ~~~~~(0.232
CDA - - ~~~~~1.467
- - ~~~~(0.373
ROW
0.444 0.443 0.363 0.47

n 1376 1376 1376 776
is the fraction of the transferor's resources devoted to scientific R&D and if the
technology involved lies within the transferor's principal line of business.
Sixth, the greater is the number of prior transfers of all technologies con-
ducted by the transferor, the lower is the probability that a subsequent trans-
fer will be conducted internally.
Seventh, given the characteristics of the technology and of the parties to the
transfer, the probability of an internal transfer has changed over time. The
quadratic specification reported in Table I implies that the probability of an
internal transfer rose until 1970 and fell thereafter. This is consistent with the
contention that there has been an increase in international competition in
high technology industries in recent years.10
VI. CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCH
In this paper we have analyzed the factors which determine whether a tech-
nology will be transferred internally between affiliated firms, or through an
arm's length licensing arrangement. While we have had some success in iso-
lating the factors which influence this decision, much remains to be done.
First, technology transfer joint ventures, in which the transferor holds
between 5 and 95 per cent of the equity of the receiving firm have yet to be
analyzed. The theory of the firm can assist in explaining both when joint
ventures will be used and the form they will take."1
Second, Williamson [25, p. 253] has noted that what we have called trans-
actions may be carried out under any one of a number of distinct types of
contractual arrangements. Other investigators have noted that, given explicit
contractual provisions, so-called market arrangements vary widely in dura-
tion and in the implicit standards of co-operation (MacMillan and Farmer
[I I, pp. 28o-82]). A complete analysis would establish the circumstances
under which each of the possible arm's length technology transfer arrange-
ments is chosen.
Third, there are other methods by which the characteristics of technology
receiving countries might be taken into account. Both the economic and social
characteristics of receiving countries and the policies of their governments
10 This increase in international competition has reduced the relative cost of market trans-
actions, first, by increasing the ease with which the qualities of a given technology can be verified.
Second, it has reduced the extent to which either party in a technology transaction will be
"locked in" and thus vulnerable to the opportunism of the other. Third, it has resulted in a more
rapid bidding down of the rents to new technologies thereby reducing the incentive to engage in
redistributive behaviour. The finding of Mansfield, Romeo and Wagner [14, p. 55] that "mar-
ginally profitable" technologies are less likely to be transferred on an intrafirm basis is consistent
with this line of reasoning.
l We have something under 400 additional observations on transfers in which the transferor
owns between 5 and 95 per cent of the receiving firm. Most of these observations involve
ownership percentages between 48 and 52 per cent. (Davidson [7, p. 8o]. While the theory of the
firm should be of assistance in predicting when joint ventures will be observed and what form
they will take, our view is that the joint venture decision can and should be analyzed separately
from the choice between purely intrafirm and purely market transactions.
toward technology transfer are potentially mneasurable. In subsequent papers

we hope to examine their impact on the mode of transfer adopted.
W. H. Davidson, ACCEPTED NOVEMBER I982

The Colgate Darden School of Business
Administration,
The University of Virginia,
Charlottesville, Virginia,
22906, U.S.A.
D. G. McFetridge,
Faculty of Social Sciences,
Department of Economics,
Carleton Unviersity,
Loeb Building,
Ottawa,
Canada, KIS5B6
REFERENCES
[I] ALCHIAN, ARMEN A. and HAROLD DEMSETZ, "Production, Information Costs and
Economic Organization", American Economic Review, 62, No. 5 (December I972),
PP. 777-95-
[2] ARROW, K. J., "Economic Welfare and the Allocation of Resources for Inven-
tion" in The Rate and Direction of Inventive Activity: Economic and Social Factors
(NBER, Princeton, Princeton U. Press, I962), pp. 609-26.
[3] BUCKLEY, P. J. and MARK CASSON, The Future of the Multinational Enterprise
(London, MacMillan, 1976).
[4] CASSON, MARK, Alternatives to the Multinational Enterprise (London, MacMillan,
'979).
[5] CAVES, R. E., "The International Corporation: The Industrial Economics of
Foreign Investment", Economica 38, No. 149 (February 1971), pp. 1-27.
[6] COASE, RONALD, "The Nature of the Firm", Economica, 4, No. i6, 1937, pp.
386-405; reprinted in G. J. Stigler and K. S. Boulding, eds., Readings in Price
Theory (Homewood, Irwin, 1952), pp. 331-51.
[7] DAVIDSON, W. H., Experience Effects in International Investment and Technology Trans-
fer (Ann Arbor: UMI Research Press, I980).
[8] DUNNING, JOHN H., "Alternative Channels and Modes of International Resource
Transmission", in Tagi Sagafi-nejad, Richard W. Moxon and Howard V. Perl-
mutter, eds., Controlling International Techology Transfer: Issues, Perspectives and
Policy Implications (New York, Pergamon, I 98 I).
[9] GOLDBERGER, ARTHUR S., Econometric Theory (New York, Wiley, I 964).
[io] KLEIN, B., R. G. CRAWFORD and A. A. ALCHIAN, "Vertical Integration, Appro-
priable Rents and the Competitive Contracting Process", Journal of Law and
Economics, 2I, No. 2, (October 1978), pp. 297-326.
[I I] MACMILLAN, KEITH and DAVID FARMER, "Redefining the Boundaries of the
Firm", The Journal of Industrial Economics, 27, No. 3, (March 1979), pp. 2 77-85.
[12] MAGEE, STEPHEN P., "Information and the Multinational Corporation: An
Appropriability Theory of Foreign Direct Investment", in J. N. Bhagwati, ed.,
The New International Economic Order: The North-South Debate (Cambridge, MIT
Press, I977).
[I I] MANSFIELD, EDWIN and ANTHONY ROMEO, "Technology Transfer to Overseas
Subsidiaries by U.S.-Based Firms", Quarterly Journal of Economics, 94, No. 4
(December I980), PP. 737-50.
[I4] MANSFIELD, EDWIN, ANTHONY ROMEO and SAMUEL WAGNER, "Foreign Trade
and U.S. Research Development", Review of Economics and Statistics, 61, No. I
(February I 979), PP. 49-57.
[15] MCKEAN, ROLAND N., "Discussion", American Economic Review, 6i, No. 2, (May
I97I), PP. I24-25.
[I6] MCMANUS, J. C., "The Costs of Alternative Economic Organizations", Canadian
Journal of Economics, 8, No. 3 (1 975), PP. 334-50.
[I7] TEECE, D. J., The Mlultinational Corporation and the Resource Cost of International
Technology Transfer (Cambridge, Ballinger, I976).
[i8] TEECE, D. J., "The Multinational Enterprise: Market Failure and Market
Power Considerations", Sloan M'!anagement Review, 22, No. 3 (Spring 198I), pp.
3-I 7.
[I9] SCHLAIFER, ROBERT, U'ser's (;'uide to the AQD Collection (Boston, Harvard Business
School, I978).
[20] VERNON, R., Sovereignty at Bay: The Multinational Spread of U.S. Enterprises (New
York, Basic, I 97 I) .
[2 I] VERNON, R., Storm Over the AM!ultinationals (Cambridge, Harvard University Press,
I977).
[22] VERNON, R. and W. H. DAVIDSON, "Foreign Production of Technology-Intensive
Products by U.S.-Based Multinational Enterprises" (Working Paper, Graduate
School of Business Administration, Harvard University, Boston, I 97 7).
[23] WILLIAMSON, 0. E., "Vertical Integration of Production: Market Failure Con-
siderations", American Economic Review, 6 I, No. 2 (May I 97 I ), PP. I I 2-23.
[24] WILLIAMSON, 0. E., M'farkets and Hierarchies: Analysis and Antitrust Implications (New
York, The Free Press, I 975) .
[25] WILLIAMSON, 0. E., "Transaction-cost Economics: The Government of Contrac-
tual Relations", The Journal of Law and Economics, 22, No. 2 (October I979), PP.
233-6I.
[26] WILLIAMSON, 0. E., "Vertical Integration and Related Variations on a Trans-
action Cost Economics Theme" (Paper prepared for presentation at an Interna-
tional Economics Association Conference on "New Developments in Market
Structure", Ottawa, Canada, May I0-I4, I982.
[27] WILSON, ROBERT W., "The Effect of Technological Environment and Product
Rivalry on R&D Effort and Licensing of Inventories", Review of Economics and
Statistics, 59, NO. 2 (May I977), PP. I7I-78.

International Technology Transactions and The Theory of The Firm PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Technology Transactions and The Theory of The Firm PDF

Uploaded by

Copyright:

Available Formats

International Technology Transactions and the Theory of the Firm

Author(s): W. H. Davidson and Donald G. McFetridge

INTIERNATIONAL TECHNOLOGY TRANSACTIONS

W. H. DAVIDSON AND DONALD G. MCFETRIDGE

II. T'HE CHOICE OF TRANSACTION MODE: IMPLICATION OF THE

The participants in an intrafirm transaction have different incentives. The

III. DETERMINANTS OF THE MODE OF TECHNOLOGY TRANSFER

The extent to which a technology transaction is likely to be burdened by high

IV. THE MODEL: ITS SPECIFICATION AND ESTIMATION

The determinants of the probability of internal transfer suggested by the

tation of Y conditional on the values of the independent variables. If (I) is

(2) Yi =. E(Yi) + gi = Pi + gi =E bj Xij + E

(3) E(Yi) = Pi = I/I + exp - E cjxij)]

V. EMPIRICAL RESULTS AND THEIR INTERPRETATION

Actual .M1arket Intrafirm Total

Percentage correctlN classified = 79.2

8 The percentage of transactions classified correctly falls to 76.2.

ESTIMATES OF EQUATION (3)

Equation IEquation Equation 3 Equ

const. -0.1824 - 3.65 0.4332 i.8

In (A + I) -0.2641 -0.091 -0.3268 -0.120 -0

(0. 1364) (0.1303) (0

In T 0.4235 -0.143 -0.4882 -0.177 -0

0.444 0.443 0.363 0.47

VI. CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCH

toward technology transfer are potentially mneasurable. In subsequent papers

W. H. Davidson, ACCEPTED NOVEMBER I982

You might also like