Licensing vs. Innovaiton Incentives under Uncertainties in Government Policies

Tarun Kabiraj and Chun-Lei Yang

Boston University - Institute for Economic Development from Boston University, Institute for Economic Development

Abstract: We discuss innovative incentives of a local firm when an advanced technology may be available through a foreign firm. The domestic government follows either protection or free trade policy, but there are uncertainties about the realization of a particular policy. We portray the situations in which licensing, either with or without innovation, occurs in equilibrium. We point out that without a binding contract equilibrium outcomes do not always maximize the aggregate industry profit. Also, negative license fee can occur in equilbrium. This analysis is then applied to the controversial question of whether the liberalization policy generates sufficient incentives for domestic innovation. In particular we show that, under the same parametric situation, an innovation decision can be optimal if a protective policy prevails with certainty, while licensing occurs if free trade prevails for sure. The paper also shows that innovation incentives can be strictly lower where the government cannot commit to its liberalization policy so as not to intervene in case of failure.

Date: 1996-11
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fth:bosecd:76

Access Statistics for this paper

More papers in Boston University - Institute for Economic Development from Boston University, Institute for Economic Development Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().