Non-homothetic preferences and IPRs protection

Kim Sau Chung, Chia Hui Lu*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    2 Citations (Scopus)


    There are two opposite views regarding whether stronger protection of intellectual property rights (IPRs) will benefit or hurt the South. We provide a unification using a model of directed innovations with identical but non-homothetic preferences. For the South, a major benefit of protecting IPRs is incentivizing innovations that better address its needs (the directed-innovation benefit), and a major cost is yielding monopoly rents to innovators (the monopoly-rent cost). When preferences are non-homothetic, the directed-innovation benefit decreases in South's income, because consumption baskets of the South become more similar to those of the North; while the monopoly-rent cost increases in the South's income, because higher income admits greater monopoly markups. The combined effect implies that the costs of IPRs protection tend to outweigh the benefits for mid-income countries, while the opposite is true for low-income ones. We discuss the policy implications of this observation.

    Original languageEnglish
    Pages (from-to)229-239
    Number of pages11
    JournalJournal of Development Economics
    Publication statusPublished - Jul 2014

    Scopus Subject Areas

    • Development
    • Economics and Econometrics

    User-Defined Keywords

    • Directed innovation
    • Income differences
    • IPRs protection
    • Non-homothetic preferences
    • TRIPS


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