I Trust You, Will You Trust Me? Asymmetry of Bilateral Trust and the Market for Technology

A substantial body of literature on the market for technology has highlighted the role of formal institutions on intellectual property rights. However, limited focus has been given to informal institutions when formal institutions are not well established. This study draws on the transaction cost perspective and theory of geography of innovation and examines the effect of interregion bilateral trust on technology transfer between pairs of provinces in China. We use data on all cross-province patent licensing deals in China between 2009 and 2019 and find that bilateral trust has a positive effect on the probability and size of interprovincial patent licensing. In addition, we find a stronger role of bilateral trust in facilitating the licensing in strategic emerging industries and with science-based patents. We also find that the effect of bilateral trust is stronger for distant patent licensing compared with neighboring ones. Our findings contribute to studies on the innovation outcomes of social trust by revealing the asymmetry side of trust in the market for technology.