International Trade Policy towards Monopolies and Oligopolies

EconWPA, International Trade 01/2003;
Source: RePEc

ABSTRACT This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.


Available from: Praveen Kujal, Jun 02, 2015
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    ABSTRACT: This paper investigates the effects two government funding structures (cost sharing v.s. performance reward) on private R&D and firm growth in China. The results show that central government tends to subsidy firms' R&D using a performance reward structure, which may reduce the return of private R&D. However, the local government tends to adopt the cost sharing structure, which can increase the return of private R&D. Generally, there are two approaches to follow: Cost sharing structure v.s. performance reward structure. In the cost sharing structure, government pay some portion of the firm's R&D expenditures, while in the performance reward pattern, government provide funds based on the outcome of the R&D. References (5)-(7) consider the cost sharing structure, and (8)-(11) consider the reward for performance structure. Reference (12) makes a theoretical comparison of these funding structures in a two-country two-firm intra-industry trade model. They document that, in the markets that reward performance instead of effort, the cost sharing pattern is associated with higher social surplus and quality improvement. More specifically, the government funds used in the reward for performance pattern have a substitute effect on private R&D investment, while funds in the cost sharing structure have a complementary effect on private R&D investment. To our knowledge, no one has provided evidence to the above argument, especially for developing countries. The objective of this paper is to fill this gap, and provides evidence on the effects of various government funding structures (cost sharing v.s. performance reward) on private R&D and firm growth in China. We argue that, the central government tends to adopt the performance reward structure, while the local government acts more like a cost sharing structure. The reason behind this statement is straightforward. The central government knows little about the project of local firms, because there is severe information asymmetry between them. The rational behavior of central government thus should be subsidy firm's R&D based on the previous R&D output or performance of firm. However, this is not the case for local government. Officials in local government can learn about the R&D ability and performance of firms at a relatively lower cost. Meanwhile, local government officials are more concerned about his tenure, and thus the long-term economic growth. Obviously, to subsidy firm's R&D investment is helpful to achieve this goal. Therefore, one can expect that the local government tend to subsidy firm's R&D activity adopting a cost sharing structure.
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    ABSTRACT: This paper investigates government subsidy games for private sector research and development (R&D) in a two-country two-firm intra-industry trade model. Two funding structures are compared: “cost sharing” vs. “reward for performance.” Both the theoretical evidence and the results of a Monte Carlo simulation suggest that cost sharing is associated with higher social surplus and quality improvement because it prompts the firm to do more R&D. In a cost sharing program government and firm R&D are always complements. In the reward for performance program government and firm R&D may be complements, but are usually substitutes. In the Monte Carlo results the average firm contribution to R&D expenditure is actually negative with a reward for performance funding structure—raising the question of whether it might be construed as corporate welfare. Finally, the paper characterizes funding priorities for both structures in the case when subsidy dollars are scarce and when they are not. KeywordsR&D-Subsidy-Cost sharing-Reward for performance-Corporate welfare JEL ClassificationF12-O38-H25-F15
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