Trust, Incomplete Contracts and the Market for Technology

37 Pages Posted: 28 Feb 2013

See all articles by Paul H. Jensen

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Alfons Palangkaraya

Centre for Transformative Innovation, Faculty of Business and Law, Swinburne University of Technology

Elizabeth Webster

Swinburne University of Technology; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Date Written: February 2013

Abstract

Conditional on the decision to enter the market for immature technology, we test for the effects that trust – as proxied by the context in which the negotiating parties met – has on the likelihood that these negotiations are successful. Using a randomised dataset of 860 university-firm and firm-firm technology transactions, we find that the depth of prior relationship and circumstantial knowledge about each other matters, and matters a lot. Parties who knew each other from a previous business are 28.2 percentage points more likely to conclude a transaction compared with cold-callers. Meeting via an industry network offers an intermediate advantage but meeting via a third party or at a conference only offers a modest advantage over cold calling.

Keywords: Markets for technology, R&D, invention, patent

JEL Classification: O31, O34

Suggested Citation

Jensen, Paul H. and Palangkaraya, Alfons and Webster, Elizabeth M., Trust, Incomplete Contracts and the Market for Technology (February 2013). Melbourne Institute Working Paper No. 03/13, Available at SSRN: https://ssrn.com/abstract=2226727 or http://dx.doi.org/10.2139/ssrn.2226727

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Alfons Palangkaraya

Centre for Transformative Innovation, Faculty of Business and Law, Swinburne University of Technology ( email )

AGSE Building
Room 117
Hawthorne, Victoria 3121
Australia
+61392145826 (Phone)

Elizabeth M. Webster (Contact Author)

Swinburne University of Technology ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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