82 International Organization ing to Kindleberger.What that price would be,empirically,would be a function of the relative bargaining strengths of the two sides.(Penrose ultimately agreed with Kindleberger's argument.)7 This suggests that the concern of dependencia analysts about whether the price paid to multinationals is "high''or "'low''resolves itself into a question of what determines the relative bargaining power between foreign investors and host coun- tries,and how that bargaining power changes over time.But Kindleberger's formu- lation also provides a way of addressing a separate conceptual issue-specifically, whether foreign investors"drain off'an economic surplus that could otherwise be devoted to internal development.The outcome of a calculation of this sort depends upon the alternative against which one measures the services of foreign corpora- tions.For some dependentista writers,e.g.,Andre Gunder Frank,the cost of foreign investment appears to be measured against hypothetical state industries of a socialist government that could perform all the functions of the foreign investors at the same or lower cost in terms of local resources,and with less leakage (via imports or profit remittances)abroad.8 If that is a realistic alternative,then even within the Penrose-Kindleberger framework,the value of foreign investment should clearly be placed at zero (or less).But if that is not a realistic alternative,then public policy analysts must compare the minimum price to which foreign investors can be pushed with the scarcity value of their services to the country.The calculation of that minimum price''brings us back to the question of what determines the bargaining power of host countries and foreign investors. There have been three major sets of hypotheses to try to account for relative negotiating strength.The first focuses on characteristics of the project under negoti- ation:absolute size of fixed investment,ratio of fixed to variable costs,stability of technology,and complexity of marketing (or degree of product differentiation).3 These characteristics are treated as independent variables predicting the outcome of the bargain.Firms contemplating projects with low fixed investments,low fixed costs,changeable technology,and complex marketing (or some combination thereof)will be less vulnerable to host country demands than will firms contemplat- ing projects with the opposite characteristics.As a corollary,one would expect that firms considering ventures with the latter characteristics would require a larger risk premium before they would invest (i.e.,would not commit the large amounts of 1.'International Economic Relations and the Large Intemational Firm,"in E.F.Penrose,Peter Lyon, Edith T.Penrose,eds.,New Orientations:Essays in International Relations(New York:The Humanitics Press,1970). "For the citations for Andre Gunder Frank,see footnote 1.For a case where a domestic state agency both wasted local resources and allowed a larger loss of foreign exchange abroad than did foreign multinationals,see James E.Zinser,"'Alternative Means of Meeting Argentina's Petroleum Require. ments,"in Raymond F.Mikesell,ed.,Foreign Investment in the Petroleum and Mineral Industries: Case Studies of /nvestor-Host Country Relations (Baltimore,Md.:Johns Hopkins Press for Resources for the Future,1971).For contrary evidence from the same industry (petroleum),see Michael Tanzer,The Political Economy of International Oil and The Underdeveloped Countries (Boston:Beacon Press, 1969). "The hypotheses on bargaining strength that have been separated here are frequently mixed together in the literature.For an overview that includes project characteristics as independent variables see C.Fred Bergsten,Thomas O.Horst,Theodore H.Moran,American Multinationals and American Interests (Washington,D.C.:Brookings,1978).82 International Organization ing to Kindleberger. What that price would be, empirically, would be a function of the relative bargaining strengths of the two sides. (Penrose ultimately agreed with Kindleberger's argument.)7 This suggests that the concern of dependencia analysts about whether the price paid to multinationals is "high" or "low" resolves itself into a question of what determines the relative bargaining power between foreign investors and host coun￾tries, and how that bargaining power changes over time. But Kindleberger's formu￾lation also provides a way of addressing a separate conceptual issue—specifically, whether foreign investors "drain off" an economic surplus that could otherwise be devoted to internal development. The outcome of a calculation of this sort depends upon the alternative against which one measures the services of foreign corpora￾tions. For some dependentista writers, e.g., Andre Gunder Frank, the cost of foreign investment appears to be measured against hypothetical state industries of a socialist government that could perform all the functions of the foreign investors at the same or lower cost in terms of local resources, and with less leakage (via imports or profit remittances) abroad.8 If that is a realistic alternative, then even within the Penrose-Kindleberger framework, the value of foreign investment should clearly be placed at zero (or less). But if that is not a realistic alternative, then public policy analysts must compare the minimum price to which foreign investors can be pushed with the scarcity value of their services to the country. The calculation of that "minimum price" brings us back to the question of what determines the bargaining power of host countries and foreign investors. There have been three major sets of hypotheses to try to account for relative negotiating strength. The first focuses on characteristics of the project under negoti￾ation: absolute size of fixed investment, ratio of fixed to variable costs, stability of technology, and complexity of marketing (or degree of product differentiation).9 These characteristics are treated as independent variables predicting the outcome of the bargain. Firms contemplating projects with low fixed investments, low fixed costs, changeable technology, and complex marketing (or some combination thereof) will be less vulnerable to host country demands than will firms contemplat￾ing projects with the opposite characteristics. As a corollary, one would expect that firms considering ventures with the latter characteristics would require a larger risk premium before they would invest (i.e., would not commit the large amounts of '"International Economic Relations and the Large International Firm," in E.F. Penrose, Peter Lyon, Edith T. Penrose, eds., New Orientations: Essays in International Relations (New York: The Humanities Press, 1970). 8 For the citations for Andre Gunder Frank, see footnote 1. For a case where a domestic state agency both wasted local resources and allowed a larger loss of foreign exchange abroad than did foreign multinationals, see James E. Zinser, "Alternative Means of Meeting Argentina's Petroleum Require￾ments," in Raymond F. Mikesell, ed., Foreign Investment in the Petroleum and Mineral Industries: Case Studies of Investor-Host Country Relations (Baltimore, Md.: Johns Hopkins Press for Resources for the Future, 1971). For contrary evidence from the same industry (petroleum), see Michael Tanzer, The Political Economy of International Oil and The Underdeveloped Countries (Boston: Beacon Press, 1969). 9 The hypotheses on bargaining strength that have been separated here are frequently mixed together in the literature. For an overview that includes project characteristics as independent variables see C. Fred Bergsten, Thomas O. Horst, Theodore H. Moran, American Multinationals and American Interests (Washington, DC : Brookings, 1978)