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Licensing Tacit Knowledge: Intellectual Property Rights And The Market For Know-How


  • Ashish Arora


Technology transfer involves more than just the permission to use knowledge covered by patents; the transfer of know-how is critical to the successful utilization of the transferred technology. However, know-how is typically difficult to codify, costly to transfer, and hence, difficult to contract upon. Using a principal-agent model I show that simple arms length contracts can accomplish the transfer know-how. The key to the success of arms length contracts is the complementarity between know-how and patents. The model explains why patents and know-how are bundled together in licensing contracts. It shows why licensing has limitations as a strategy for appropriating rents from innovation. The paper points to the key role that patent scope plays in determining the efficiency of know-how transfer and shows that broader patents can improve the efficiency of technology transfer, even when important components of the technology (know-how) are not protected by patents.

Suggested Citation

  • Ashish Arora, 1995. "Licensing Tacit Knowledge: Intellectual Property Rights And The Market For Know-How," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 4(1), pages 41-60.
  • Handle: RePEc:taf:ecinnt:v:4:y:1995:i:1:p:41-60
    DOI: 10.1080/10438599500000013

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    More about this item


    Know-how; licensing; patents J.E.L. classification: 034; L14;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation


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