Heterogenous Human Capital in a Model of Coalitional Bargaining Between Multinational Corporations and Host Country Enterprises

Mark DeWeaver () and James Roumasset
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Mark DeWeaver: Ithaca Advisors, LLC

No 200209, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We use the logic of ex-ante coalitional bargaining to explain the stylized fact that technology licensors typically cannot extract the entire surplus generated by their international licensing transactions. We assume a multinational corporation capable of supplying an 'external management' input (e.g. supply-chain management) and two types of host-country enterprise--one able to supply only an 'internal management' input (e.g. labor supervision) and the other able to provide both types of management. Cooperation with the first type requires profit sharing, but as this does not give adequate incentives to either side, the result is a Nash equilibrium in input levels. In order to avoid this suboptimal outcome, licensors bid up the rents they offer to the second type, which can be incentivized to supply first-best levels of both inputs through contracts specifying only a fixed per-period licensing fee.

Pages: 41 pages
Date: 2002
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