The economics of tacit knowledge in patent based technology transfer agreements

Abstract This paper examines how the absence of tacit knowledge in technology transfer agreements based on patents leads to economic inefficiencies both at the firm level and across national innovation systems. Patent‐based technology transfers typically convey codified knowledge such as blueprints and technical documentation but often fail to incorporate tacit knowledge—experiential, non‐codifiable know‐how critical for effective implementation. This oversight is especially detrimental in industries where adaptation, trial‐and‐error learning, and process optimization are key to successful adoption. The paper highlights the economic costs of excluding tacit knowledge from licensing transactions and argues that technology recipients are frequently left dependent on licensors for post‐transfer support, prolonging inefficiencies. While it briefly discusses the potential of disclosure tools like the “best mode” requirement to address this gap, the paper primarily advocates contractual, policy, and institutional mechanisms to embed tacit knowledge transfer into technology agreements. The study proposes structured learning provisions, long‐term collaborative arrangements, and policy incentives as practical reforms to facilitate fuller and more effective knowledge diffusion.