Managerial incentives for technology transfer

Abstract

This paper studies how a separation of ownership and management affects a firm's incentives to transfer knowledge about technology voluntarily and without payment to a rival in a Cournot duopoly. We consider a three-stage strategic delegation game, where two technologies are available; one with increasing returns to scale and the other with constant returns to scale. While the former is known to both firms, only the more advanced firm initially has access to the latter type of technology. This firm is assumed to be managerial, not only with respect to product market decisions, but also regarding the choice of whether or not to transfer technology to the rival firm. We consider the scope for, and limitations of, the use of strategic management and compare the results with those from traditional models that do not involve technology transfer and models that involve technology transfer, and no strategic management. The resulting technology choices are examined for their welfare implications, and finally we consider the transfer of technology when both firms are managerial.

Keywords:

• technology transfer
• managerial incentives
• technology adoption

JEL Classification :

• O14
• O30
• L13

Acknowledgements

We would like to thank two anonymous referees and participants at the Meeting of Norwegian Economists (Oslo 2008) and colleagues at the University of Tromsø, especially Jan Yngve Sand, for helpful comments on a previous draft. This paper is part of the project ‘The Knowledge-based Society’ sponsored by the Research Council of Norway (project 172603/V10). Remaining errors are our own.

Notes

For an analysis of the effects of licensing agreements on technology transfer in Cournot duopoly see Wang and Yang (2004).

This was introduced by Fershtman and Judd (1987) and Sklivas (1987), and utilized in the work of Mukherjee (2001). Recently, Jansen, Lier, and Witteloostuijn (2007) have examined a market share version of delegation games, finding that this gives qualitatively similar results to basing incentives on profits and income/sales.

Such as Wang and Yang (2004) and Mukherjee (2001).

In Appendix 1, we consider the case where the variable cost technique is common. If the fixed cost technology is relatively inexpensive then the manager of firm 1 does not want to transfer it. In other cases, transfer of knowledge is possible but the recipient does not adopt the new technology, and hence technology transfer is inessential. This is the same result as in BG.

In Section 6 we look at the technology transfer and adoption decisions when both owners delegate.

The strictest conditions here – that give these bounds – are and .

Note that we have restricted c<1/3, but since the technology combination VK (that requires this restriction) is not chosen in equilibrium, then Lemma 1 actually holds for c<1/2.

That profit increases in cases (III)–(V) is easily seen by considering the parameter restrictions on (F, c) in each case.

A large firm will often employ a manager to have responsibility for its technology and patent portfolio. The mechanism that we identify here allows the owner(s) to have at least indirect control over the transfer of knowledge.

From Equation (5) we have ; this is welfare in the BG model.

Specifically, if where is defined in Appendix 4.

KK is selected for , KV for , and VV for . All definitions are in Appendix 4.

KK is selected for , VK for , and VV for . All definitions are in Appendix 4.

This would typically be the case for a state owned firm for example, in which the overall goal of the firm is welfare maximization, but the actual running of the firm is delegated to others.

Recall that .

For simplicity we look at the case in which .

To be more precise, case (A) occurs if .