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The Dilemma of Intellectual Property Agreements and R&D in Developing Economies: A Game Theory Approach

Mhamed-Ali El-Aroui (), Selma Dellagi and Fouad Ben Abdelaziz
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Mhamed-Ali El-Aroui: International University of Rabat
Selma Dellagi: ISG de Tunis, University of Tunis
Fouad Ben Abdelaziz: Neoma Business School

Journal of Quantitative Economics, 2021, vol. 19, issue 3, No 2, 427-450

Abstract: Abstract This paper models and predicts how the strengthening of intellectual property (IP) protection will impact R&D in developing economies. International agreements such as TRIPs and free trade agreements are enhancing the level of international control on IP. This is changing deeply the R&D environment in developing economies by restraining illegal channels of knowledge accumulation such as imitation, reverse engineering and piracy. An asymmetric and non-cooperative two-stage (R&D-Production) game is proposed to model a developing market where two local firms compete with a more innovative foreign firm. Equilibrium R&D expenditures and profits of the competing firms are compared for different levels of: market technology, technological gaps and IP protection. The proposed model shows clearly that a stringent enforcement of IP agreements will dramatically decrease the innovative abilities of developing economies especially in high technological sectors. The maintain and increase of their R&D skills will not be possible without a reduction of their technological gap and strong incentives to initiate regulatory (or permit tacit) R&D cooperation between local firms.

Keywords: Innovation; Imitation; Development; TRIPs; R&D; Intellectual Property; O32; O34; C72; O12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40953-021-00243-1

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