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

Alireza Naghavi, Shin-Kun Peng () and Yingyi Tsai ()
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Yingyi Tsai: National University of Kaohsiung

No 382, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

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.

Keywords: International outsourcing; Supplier heterogeneity; Relation-specic investment; Intellectual property rights enforcement; Outside option; Customization; Technological capability (search for similar items in EconPapers)
JEL-codes: D2 F21 F23 L22 L24 O32 O34 (search for similar items in EconPapers)
Pages: 23
Date: 2015-04-14
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Related works:
Journal Article: Relationship-specific Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers (2017)
Working Paper: Relationship-Speci?c Investments and Intellectual Property Rights Enforcement with Heterogeneous Suppliers (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:382

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