Intellectual Property Rights, Licensing, and Innovation
There 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 industr...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2003/02/2156914/intellectual-property-rights-licensing-innovation http://hdl.handle.net/10986/19156 |
| Summary: | There 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. |
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