Intellectual Property Rights, Licensing, and Innovation

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dc.creatorGuifang Yang
dc.creatorMaskus, Keith E.
dc.date2014-07-31T21:55:47Z
dc.date2014-07-31T21:55:47Z
dc.date2003-02
dc.date.accessioned2026-07-01T01:31:04Z
dc.descriptionThere is considerable debate in economics literature on whether a decision by developing countries to strengthen their protection of intellectual property rights (IPRs) will increase or reduce their access to modern technologies invented by industrial countries. This access can be achieved through technology transfer of various kinds, including foreign direct investment and licensing. Licensing is the focus of this paper.To the extent that inventing firms choose to act more monopolistically and offer fewer technologies on the market, stronger IPRs could reduce international technology flows. However, to the extent that IPRs raise the returns to innovation and licensing, these flows would expand. In theory, the outcome depends on how IPRs affect several variables-the costs of, and returns to, international licensing; the wage advantage of workers in poor countries; the innovation process in industrial countries; and the amount of labor available for innovation and production. The authors develop a theoretical model in which firms in the North (industrial countries) innovate products of higher quality levels and decide whether to produce in the North or transfer production rights to the South (developing countries) through licensing. Different quality levels of each product are sold in equilibrium because of differences in consumers' willingness-to-pay for quality improvements. Contracting problems exist because the inventors in the North must indicate to licensees in the South whether their product is of higher or lower quality and also prevent the licensees from copying the technology. So, constraints in the model ensure that the equilibrium flow of licensing higher-quality goods meets these objectives. When the South strengthens its patent rights, copying by licensees is made costlier but the returns to licensing are increased. This change affects the dynamic decisions regarding innovation and technology transfer, which could rise or fall depending on market parameters, including the labor available for research and production. Results from the model show that the net effects depend on the balance between profits made by the Northern licensor and lower labor costs in the South. If the size of the labor force used in Northern innovation compared with that used in producing goods in both the North and South is sufficiently small (a condition that accords with reality), stronger IPRs in the South would lead to more licensing and innovation. This change would also increase the Southern wage relative to the Northern wage. So, in this model a decision by developing countries to increase their patent rights would expand global innovation and increase technology transfer. This result is consistent with recent empirical evidence. It should be noted that while the results suggest that international agreements to strengthen IPRs should expand global innovation and technology transfer through licensing, the model cannot be used for welfare analysis. Thus, while the developing countries enjoy more inward licensing, the cost per license could be higher, and prices could also rise, with an unclear overall effect on economic well-being.
dc.formatapplication/pdf
dc.formattext/plain
dc.identifierhttp://documents.worldbank.org/curated/en/2003/02/2156914/intellectual-property-rights-licensing-innovation
dc.identifierhttps://hdl.handle.net/10986/19156
dc.identifierhttps://doi.org/10.1596/1813-9450-2973
dc.identifier.urihttp://hdl.handle.net/123456789/418827
dc.languageEnglish
dc.languageen_US
dc.publisherWorld Bank, Washington, DC
dc.relationPolicy Research Working Paper;No. 2973
dc.rightsCC BY 3.0 IGO
dc.rightshttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectASYMMETRIC INFORMATION
dc.subjectBERTRAND COMPETITION
dc.subjectCONSUMERS
dc.subjectDEVELOPED COUNTRIES
dc.subjectDEVELOPMENT ECONOMICS
dc.subjectDEVELOPMENT RESEARCH
dc.subjectDISCOUNT RATE
dc.subjectDISCOUNTED VALUE
dc.subjectECONOMIC GROWTH
dc.subjectECONOMIC RESEARCH
dc.subjectENDOGENOUS VARIABLES
dc.subjectEQUATIONS
dc.subjectEQUILIBRIUM
dc.subjectEXCLUDABILITY
dc.subjectEXOGENOUS VARIABLES
dc.subjectEXPECTED VALUE
dc.subjectFRUITS
dc.subjectGDP
dc.subjectGROSS DOMESTIC PRODUCT
dc.subjectINCOME
dc.subjectINFORMATION TRANSFER
dc.subjectINNOVATION
dc.subjectINTELLECTUAL PROPERTY
dc.subjectINTELLECTUAL PROPERTY RIGHTS
dc.subjectINTEREST RATE
dc.subjectINTERNALIZATION
dc.subjectINTERNATIONAL TRADE
dc.subjectINTUITION
dc.subjectLABOR COSTS
dc.subjectLABOR FORCE
dc.subjectLICENSING
dc.subjectMARGINAL COST
dc.subjectMARGINAL COST OF PRODUCTION
dc.subjectMARGINAL COSTS
dc.subjectMARGINAL VALUE
dc.subjectMONOPOLY RENTS
dc.subjectMORAL HAZARD
dc.subjectNASH
dc.subjectPATENTS
dc.subjectPOLITICAL ECONOMY
dc.subjectPRESENT VALUE
dc.subjectPRIVATE INFORMATION
dc.subjectPRODUCT DIFFERENTIATION
dc.subjectPRODUCTION COSTS
dc.subjectPROPERTY RIGHTS
dc.subjectPUBLISHING
dc.subjectSAVINGS
dc.subjectTACIT KNOWLEDGE
dc.subjectTECHNOLOGY TRANSFER
dc.subjectTRANSACTION COSTS
dc.subjectUTILITY FUNCTION
dc.subjectUTILITY MAXIMIZATION
dc.subjectVALUATION
dc.subjectWEALTH
dc.subjectWILLINGNESS TO PAY
dc.subjectWORLD TRADE ORGANIZATION
dc.subjectWTO
dc.titleIntellectual Property Rights, Licensing, and Innovation

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