Knowhow trading as economic exchange

Abstract

Knowhow trading is the informal exchange of practical technical knowledge between pairs of engineers and other technicians in different firms. This paper explains the advantages and disadvantages of this particular mode of knowledge sharing from an economic perspective. Under a knowhow trading regime long-term, self-selected partners barter knowledge ex post, i.e., they exchange information already known to one of them. The paper explains why barter is better suited to the exchange of ideas than to the exchange of conventional goods and points out advantages of ex post knowledge sharing between firms whose priorities differ. It is generally cheaper to acquire knowhow through exchanges than to "reinvent the wheel" but sharing knowhow can cut into the firm's competitive advantage. Pairwise exchanges limit, although they do not eliminate, the firm's loss of competitive advantage when it shares technical knowledge. Because knowhow trading is informal and "off the books" such trading is difficult for the firm to evaluate and to manage. Similarly, since it eludes the traditional measures of economic activity, knowhow trading is difficult to document and integrate into studies of the general economy.