PRESERVATION OF TRADE SECRETS AND MULTINATIONAL WAGE PREMIA

Dan Bernhardt and Vladimir Dvoracek

Economic Inquiry, 2009, vol. 47, issue 4, 726-738

Abstract: This paper considers the strategic behavior of a multinational firm with superior technology operating in a developing country. Domestic firms do not have access to the superior technology other than by hiring away multinational corporation (MNC) workers. The MNC can retain its workers by paying a wage premia, and we determine how the industry structure and the nature of strategic competition between firms affects the MNC’s incentive to pay this premia and thus preserve its informational advantage. We characterize conditions under which MNCs inefficiently divide job tasks in order to raise the cost to domestic firms of acquiring the MNC’s trade secrets. (JEL F23, J31, O33)

Date: 2009
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