Intellectual Property Rights, Multinational Firms and Technology Transfers

Sara Biancini (CYU Cergy Paris Université)
Pamela Bombarda (CYU Cergy Paris Université)

Abstract : Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to promoting innovation and technological diffusion. This paper examines the impact of IPR on import-sourcing decisions of multinational firms. We consider a framework in which firms offshore production of an intermediate good to another country. Firms can decide either to import the intermediate good from vertically integrated producers, or from independent suppliers. In both cases, offshoring part of the production process embodies a risk of imitation. The model predicts that, under reasonable parameter restrictions, stronger IPR disproportionately encourages the imports of intermediate goods through vertical integration. Using the US Related-Party Trade database, we find empirical evidence supportive of the positive link between level of IPR and the relative share of imports from vertically integrated manufacturers.

Endogenous Property Rights and the Nature of the Firm.

Carmine Guerriero (Department of Economics, University of Bologna)
Giuseppe Pignataro (Department of Economics, University of Bologna)

Abstract : While focusing on residual rights, the property rights theory---i.e., PRT---of the firm overlooks the legal protection of each party's input. We assume, instead, that the legislator selects the upstream firms' property rights, which, in turn, determine their ex post bargaining power, by maximizing the supply of projects possibly adopting the efficient full-investment profile and, conditionally on this goal being reached, minimizing less likely deviations to inefficient intermediate-investment profiles. Differently from the PRT, each party's ex ante incentives are exclusively determined by property rights, which are, in turn, entirely driven by the---absolute and relative to innovation costs---size of the default payoffs. When the latter are small and the gains from trade are large, any market structure delivers the same incentives for full-investment, and the legislator's goal becomes discouraging costly deviations by unbalancing the most the parties' investment returns. To do so, she protects more the party with the smallest default payoff in such a way that the other one receives more often its preferred ownership structure. Opposite patterns arise when investment returns are already unbalanced by one disagreement payoff being large and, thus, fostering full-investment is pivotal. Regardless of the size of the innovation costs, each party's property rights are weaker (stronger) the larger is its (partner's) default payoff. These patterns remain true when one party dominates institutional design or has a stronger impact on the project value. In the last case, property rights do not generally favor the party shaping the most the relationship value. Crucially, our conclusions are consistent with the interplay among proxies for the legal protection of the downstream firms' personal and intellectual property, firms' presence in the value chain, process and capital specificity and R\&D intensity in a panel of 119 countries spanning the 2006-2018 period.

Contracting Institutions and Firm Integration Around the World

Bohdan Kukharskyy (City University of New York)
Peter Eppinger (University of Tuebingen)

Abstract : Firm integration is fundamentally shaped by contractual frictions. But do better contracting institutions, reducing these frictions, induce firms to be more or less deeply integrated? To address this question, this paper exploits unique micro data on ownership shares across half a million firm pairs worldwide, including domestic and cross-border ownership links. We uncover a new stylized fact: Firms choose higher ownership shares in subsidiaries located in countries with better contracting institutions. We develop a Property-Rights Theory of the multinational firm featuring partial ownership that rationalizes this pattern and guides our econometric analysis. The estimations demonstrate that better contracting institutions favor deeper integration, in particular in relationship-specific industries.