International joint venture, licensing and buy-out under asymmetric information

In an asymmetric information framework, this paper deals with the issue of instability of international joint ventures in the context of developing co untries. We provide a rationale for international joint venture formation a s opposed to licensing, and also its subsequent instability. The joint vent ure is formed in response to government restriction on foreign equity holdi ngs in the first period. However, the joint venture becomes unstable in the second period, when the government removes the foreign equity restriction. We also provide a new justification for the transfer of an inferior techno logy in the present framework. (C) 2001 Elsevier Science B.V. All rights re served.