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Relationship-Specific Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers

Author

Listed:
  • Alireza Naghavi

    (University of Bologna and Centro Studi Luca d'Agliano)

  • Shin-Kun Peng

    (Institute of Economics, Academia Sinica)

  • Yingyi Tsai

    (National University of Kaohsiung)

Abstract

This paper examines the impact of intellectual property rights (IPR) enforcement on multinationals' choice of input suppliers and industry profits in a host economy. The framework consists of suppli-ers with heterogeneous capabilities who must engage in a relation-specific investment to customize intermediate inputs upon a transfer payment by final producers. An outsourcing contract with better technologically-endowed suppliers requires a lower transfer and generates a higher surplus. Stronger IPR enforcement leads firms to self-select into better quality suppliers on average by reducing their outside option. Weak legal institutions instead make it possible for a larger range of suppliers, including the less capable ones, to form partnerships by granting them a larger outside option. A better IPR environment is more likely to harm lagging countries where the technology distribution is characterized by less capable suppliers.

Suggested Citation

  • Alireza Naghavi & Shin-Kun Peng & Yingyi Tsai, 2015. "Relationship-Specific Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers," Development Working Papers 382, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:382
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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