Ipr protection – two polar views:

• Proponents: more R&D, more FDI, more rapid economic growth

• Opponents: forestalled access to new technologies, higher prices and rent transfers

IpRs in open economies

Basic asymmetry:

• Northern countries are both producers and consumers of intellectual assets

• Southern countries are mostly consumers of these assets

Patents: a second best solution

Through time-bound exclusivity, creators of knowledge can charge prices above marginal costs and thereby recoup initial investment in generating information

• Second-best: because static market distortion

• But: decision-making decentralized and driven by profit motive

• Government can, in principle, fix the length of protection, such as to maximize social benefits and minimize associated economic costs

Practical complications

• Lack of information on parameters needed to optimize scope of protection

• Optimal scope of protection differs across economic sectors, depending on the availability of other means to appropriate knowledge-generating activities (e.g., technology, first mover advantage, etc.)

• Patents and the diffusion of knowledge:

  • Restrict imitation

  • Disclosure of knowledge; tool for licensing

Trademarks are different

• Market failure of asymmetric information

• Trademarks assure consumers that they purchase what they intend to purchase

• Trademarks thus offer an incentive to invest in reputation and superior quality

• Trademark protection can co-exist with competitive markets

• Protection is not time-bound

Intellectual property protection works best in an environment of open competition, risk taking and adequate engineering and entrepreneurial skills. Further, the inherent market difficulties of providing incentives for invention and innovation are only partially addressed by IPRs, leaving a role for public policy. Accordingly, governments could be advised to complement their intellectual property regimes with policy reforms. Stronger IPRs are likely to raise pressures for structural adjustment in many economies. Counterfeiting activity will be reduced significantly over time by copyright and trademark enforcement. Also, while IPRs are an important encouragement for technology development, acquisition, and adaptation, they may be usefully supplemented by programs to promote national technical change. It is not difficult to understand why, relative to closed economies, economies that are more open to trade and FDI experience a growth premium from strengthening their IPRs. Stronger property rights create market power, which is more easily abused in economies that are not open to foreign competition. Perhaps the most significant effect of trade liberalization is the injection of foreign goods and techniques that compete with previously protected oligopolies. These precompetitive gains have been shown to be significant in a variety of contexts and at different levels of development. In that sense, to strengthen IPPRs, on the one hand, while maintaining closed markets, on the other, is to work at cross-purposes. There are also reasons why IPRs and open markets are complementary: 1. Liberal stance on inward trade and FDI; 2. A critical purpose of IPRs is to encourage investment in improved product quality, which is often a precondition for breaking into export markets.

Adequate and effective IPRs protection can be an important spur to competition at all levels of economic development. Implementing stronger IPRs on a global scale raises issues regarding coordinated international policies to deal with externalities that might be accentuated, which are new and complex issues that require serious study.