International Outsourcing and Welfare Reduction: an Entry-deterrence Story

We show that international outsourcing may reduce welfare of the outsourcing country by deterring market-entry, thus showing a new effect which is different from the employment and the quality effects creating negative impacts of outsourcing. Entry deterrence under outsourcing reduces domestic welfare if both the profit extraction and cost saving from outsourcing are sufficiently small.Entry, Outsourcing, Welfare

Technology licensing with strategic tax policy

Despite the important insights it has provided, technology licensing literature remains restrictive by not allowing government policies. We show that in the presence of strategic tax policies, an outside innovator and, more interestingly and in contrast to the existing works, the consumers are better off under royalty licensing compared to auction (or fixed-fee licensing) if the number of potential licensees is sufficiently large. It follows from our analysis that a combination of fixed-fee and output royalty can be preferable to the innovator compared to both royalty licensing and auction (or fixed-fee licensing).Licensing; Tax; Auction; Royalty

Managerial incentives and social efficiency of entry

This paper studies the role of separation of ownership and management in determining the welfare implications of entry in oligopolistic markets. We show, in the presence of managerial incentive schemes with cost asymmetry, that entry is socially insufficient unless scale economies are very large. The policy implications emerging from the present analysis suggests that entry should be encouraged under cost asymmetry and not large scale economies.Cost asymmetry; Incentive delegation; Insufficient entry; Excessive entry

Cross-border intellectual property rights: contract enforcement and absorptive capacity

This paper studies cross-border intellectual property rights (IPR) as a North-South contract using a Nash bargaining approach and distinguishes between the outcome and its actual enforcement. The absorptive capacity of the Southern country to exploit technology transfer plays a key role in the negotiated level of IPRs and its post-treaty enforcement. The optimal level of IPR protection relates positively to absorptive capacity. This provides a rationale for the longer time-frame provided to least developed countries in Article 66 of TRIPS to implement its provisions. In addition, monitoring is only effective in preventing contract violation up to a critical level of absorptive capacity. We relate this to the US Trade Representative “Special 301” report, which flags countries that deny adequate IPR protection as “priority watch list”. While disputes with less developed economies are promptly resolved, emerging economies, where most losses from copyright piracy originates from, continue to remain on the lis

Governance and foreign direct investment: is there a two-way relationship?

The issue of economic governance is highly discussed pertaining to the question of industrialisation of a country, yet the literature on international trade and foreign direct investment (FDI) hardly pays attention to this aspect. We show that higher investment in economic governance attracts FDI. However, whether the possibility of FDI induces more investment in governance is not immediate, and depends on the factors such as the marginal cost difference between the firms, the international transportation cost and the cost of FDI. Our results suggest that we may expect a two-way relationship between investment in economic governance and inward FDI in more technologically backward domestic countries. However, a less technologically backward domestic country may have a strategic reason for relatively poor economic governance in order to prevent FDI, if we control for other benefits from FDI, such as knowledge spillover and domestic employment generation.Foreign direct investment; Governance; Welfare

Why do Firms Engage in Multi-sourcing?

We provide an explanation for multi-sourcing, which is often found in the real world and refers to the situation where a final goods producer acquires homogenous components from different suppliers. In the presence of imitation under outsourcing, multi-sourcing helps to deter entry by the suppliers into the final goods market and enhances profitability of the outsourcing firm.Entry, Imitation, Multi-sourcing

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

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

Domestic patenting systems and foreign licensing choices

This paper examines a foreign technology holder’s licensing choices between royalty and fixed-fee scheme. We emphasize that foreign licensor chooses the quality of licensed technology when the licensee country does not implement perfect intellectual property protection for licensor’s technology. We study quality choice as the foreign licensor’s selection for a particular grade of technical skills. We show that fixed fee emerges as the equilibrium licensing scheme when both the transfer of his technology is relatively efficient and the licensee is sufficiently cost competitive in the domestic market, and that royalty licensing prevails otherwise. We further show it need not hold the general belief that welfare in the licensor country unambiguously rise with a stronger patenting system in the licensee country when, in particular, such patenting system in place is sufficiently lax

Reform and Development in China : A New Institutional Economics Perspective

The success of China's approach to transition has produced many challenges to the conventional wisdom in economic theory. The transition in essence is a process of institutional changes from those of a planned economy to those of a market economy. In the paper we argue that the economic institutions of the planned economy are endogenously shaped by the adoption of a comparative advantage-defying (hereafter CAD strategy) heavy industry-oriented development strategy in a capital scarce economy. It is. Hence, suggested the completion of China's transition to a market economy, which requires the elimination of institutional distortions in the planned economy, depends on final resolution of viability issue of enterprises in CADs priority sectors

Demand Uncertainty and the Choice of Business Model in the Semiconductor Industry

The traditional approach to voluntary provision of pure public goods typically models the factors of group heterogeneity and group size in a piecemeal fashion and fails to explain salient empirical observations. Integrating both factors into a single model, we examine how they interact with each other to determine the structure of Nash equilibrium, and show that this model is indeed useful in making realistic predictions