THE CHALLENGE OF CONTRACTING FOR TECHNOLOGICAL INFORMATION

Contracting to provide technological information (TI) is a significant challenge. TI is an unusual commodity in five ways. (i) TI is difficu lt to count and value; conventional indicators, such as patents and ci tations, hardly indicate value. TI is often sold at different prices t o different parties. (ii) To value TI, it may be necessary to ''give a way the secret.'' This danger, despite nondisclosure agreements, inhib its efforts to market TI. (iii) To prove its value, TI is often bundle d into complete products, such as a computer chip or pharmaceutical pr oduct. Efficient exchange, by contrast, would involve merely the raw i nformation. (iv) Sellers' superior knowledge about TI's value make buy ers wary of overpaying, (v) Inefficient contracts are often designed t o secure rents from TI. For example, licensing agreements charge more than marginal cost, These contracting difficulties affect the way TI i s produced, encouraging self-reliance. This should be an advantage to large firms, However, small research and development firms spend more per employee than large firms, and nonprofit universities are major pr oducers. Networks of organizational relationships, particularly betwee n universities and industry, are critical in transmitting TI, Implicit barter-money for guidance-is common. Property rights for TI are hard to establish. Patents, quite suitable for better mousetraps, are inade quate for an era when we design better mice. Much TI is not patented, and what is patented sets fuzzy demarcations, New organizational forms are a promising approach to contracting difficulties for TI. Webs of relationships, formal and informal, involving universities, start-up f irms, corporate giants, and venture capitalists play a major role in f acilitating the production and spread of TI.