Intellectual Property Rights and Efficient Firm Organization
AbstractThis paper shows that intellectual property rights yield static efficiency gains, irrespective of their dynamic role in fostering innovation. I develop a property-rights model of firm organization with two dimensions of non-contractible investment: how much cost-minimizing effort to exert, and whether to direct it towards partnership or defection. In equilibrium, the first best can be attained if and only if property rights are as strong for intangible as for tangible assets. When IP rights are weaker, the structure of the firm is distorted and efficiency declines. An entrepreneur must either integrate her suppliers, which induces a fall in their investment; or else risk their defection, which entails a waste of her human capital. My model predicts greater prevalence of vertical integration in response to weaker IP rights. It also predicts a switch from integration to outsourcing over the product cycle. Both empirical predictions are consistent with evidence on the organization of multinational companies. As a normative implication, I find that IP rights should be strong but narrowly defined, to protect one business opportunity without holding up its potential spin-offs.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9212.
Date of creation: Nov 2012
Date of revision:
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Other versions of this item:
- Giacomo Ponzetto, 2013. "Intellectual Property Rights and Efficient Firm Organization," Working Papers 668, Barcelona Graduate School of Economics.
- Giacomo A. M. Ponzetto, 2008. "Intellectual property rights and efficient firm organization," Economics Working Papers 1254, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2013.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- K11 - Law and Economics - - Basic Areas of Law - - - Property Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-06 (All new papers)
- NEP-BEC-2012-12-06 (Business Economics)
- NEP-COM-2012-12-06 (Industrial Competition)
- NEP-INO-2012-12-06 (Innovation)
- NEP-IPR-2012-12-06 (Intellectual Property Rights)
- NEP-KNM-2012-12-06 (Knowledge Management & Knowledge Economy)
- NEP-TID-2012-12-06 (Technology & Industrial Dynamics)
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