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Relationship-Speci?c Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers

Alireza Naghavi (), Shin-Kun Peng () and Y. Tsai

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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 suppliers 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.

JEL-codes: D23 F21 F23 L22 L24 O32 O34 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-cta, nep-ipr and nep-pr~
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Related works:
Journal Article: Relationship-specific Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers (2017) Downloads
Working Paper: Relationship-Specific Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers (2015) Downloads
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