Working Paper No. 03-15

International Joint Ventures under Imperfect Protection of Intellectual Property Rights and Asymmetric Information
Jirawat Panpiemras
November 2003

ABSTRACT

In this paper, I develop a quality ladder product cycle model with two quality levels to examine the effects of intellectual property rights (IPRs) protection on the extent of international joint ventures (JVs) and the rate of innovation under asymmetric information and imitation risk. The Northern share of a JV is endogenously determined. An optimal Northern share of a JV is an increasing function of Southern IPRs. With asymmetric information problem and imitation risk, an optimal JV contract involves giving a Southern partner a larger share of a JV when Southern IPRs are weaker, and giving a smaller share when Southern IPRs are stronger. The results are that stronger Southern IPRs increase the extent of JVs, the rate of innovation and the relative wage. In the case of low-quality technology transfer, licensing is a preferred mode of technology transfer. In the case of high-technology transfer, a JV is a preferred mode of technology if the cost of imitation under a JV contract is sufficiently higher than the cost of imitation under licensing contracts.

JEL classification: F12; F23; O34; D82
Keywords: International Joint Ventures; Licensing; Innovation; Intellectual Property Rights

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