On the Survival of Contracts : Assessing the Stability of Technology Licensing Agreements in the Brazilian Seed Industry

Most empirical studies in contracting have analyzed contract length within an ex ante focus, when agents pre-specify the desired duration of the transaction as a contractual clause. The present study focuses on contract duration as defined ex post, meaning that the survival of contractual relationships is observed over time. We draw from several theoretical perspectives - transaction cost economics, self-enforcement theory, and social attachment models - to generate testable predictions. Our empirical study employs hazard rate models with time-varying covariates, using data from technology licensing contracts between seed companies and a governmental R&D organization in Brazil, EMBRAPA. Consistent with self-enforcement theory, we find that contract continuity seems to be positively affected by the level of quasi-rents in the relationship, and by evidence of satisfactory past performance. In addition, as predicted by transaction cost economics, exogenous disturbances tend to destabilize contracts and induce their termination. Finally, our data show that, as relationships unfold, rates of contract termination increase rather than decrease. Apparently, the value of the licensing contracts analyzed in this study decreases over time due to the possibility of acquiring alternative technologies from other firms or developing their own technologies internally, an effect that seems to outweigh the role of evolving social ties in promoting contract continuity