We study the effects of geographic proximity on the decision of firms to license technology from one of the leading academic medical centers in the world. Using a unique dataset allows us to observe both licenses that are concluded —“deals done” and license negotiations that fail —“deals not done.” Using patents filed after 1981 and observed until 2011, we find that geographic distance negatively influences the decision to license a patent. Because all firms in the data have considered and performed due-diligence on the patent of their interest, we can eliminate “search costs” as the explanation for this finding. We interpret our findings as instead reflecting the effect of distance on informal reputation and quality verification and the physical costs of transferring tacit knowledge.
