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The Dilemma of Intellectual Property Agreements and R&D in Developing Economies: A Game Theory Approach

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  • Mhamed-Ali El-Aroui

    (International University of Rabat)

  • Selma Dellagi

    (ISG de Tunis, University of Tunis)

  • Fouad Ben Abdelaziz

    (Neoma Business School)

Abstract

This paper models and predicts how the strengthening of intellectual property (IP) protection will impact R&D in developing economies. International agreements such as TRIPs and free trade agreements are enhancing the level of international control on IP. This is changing deeply the R&D environment in developing economies by restraining illegal channels of knowledge accumulation such as imitation, reverse engineering and piracy. An asymmetric and non-cooperative two-stage (R&D-Production) game is proposed to model a developing market where two local firms compete with a more innovative foreign firm. Equilibrium R&D expenditures and profits of the competing firms are compared for different levels of: market technology, technological gaps and IP protection. The proposed model shows clearly that a stringent enforcement of IP agreements will dramatically decrease the innovative abilities of developing economies especially in high technological sectors. The maintain and increase of their R&D skills will not be possible without a reduction of their technological gap and strong incentives to initiate regulatory (or permit tacit) R&D cooperation between local firms.

Suggested Citation

  • Mhamed-Ali El-Aroui & Selma Dellagi & Fouad Ben Abdelaziz, 2021. "The Dilemma of Intellectual Property Agreements and R&D in Developing Economies: A Game Theory Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 427-450, September.
    • Handle: RePEc:spr:jqecon:v:19:y:2021:i:3:d:10.1007_s40953-021-00243-1
    DOI: 10.1007/s40953-021-00243-1
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    References listed on IDEAS

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