Purpose: Most developing countries are characterized by large informal sectors. A substantial proportion of firms in these countries began operations in the informal sector, eventually becoming formal. The purpose of this paper is to study whether, after formalization, firms that began...

We propose an incomplete contract model of licensing of a cost-reducing technology. We incorporate exchange rate uncertainty and analyze its impact on the parties' investment and licensing decisions. We show that exchange rate uncertainty introduces a distortion in the parties' specific...