Implications of intellectual property rights for dynamic gains from trade,” American Economic Review (2005)95: 318–22

It is traditionally argued that the enforcement of intellectual property rights (IPRs) is necessary to compensate innovators for incurring the fixed costs of R&D. The argument in support of finite domestic patent protection is familiar. On one hand, patents provide monopoly rights to innovators as an incentive to innovate. On the other hand, once the innovation has occurred it is socially optimal (in a one time game) for the government to revoke patent protection so as to lower the price of the invention and increase its use. In a repeated game, however, such a policy would severely dampen future innovations. Hence, the government legally maintains monopoly rights for innovators, but only for a finite time. A similar trade-off exist between developed countries, where a majority of innovations oc-cur, and developing countries that wish to have greater access to these innovations through lower prices. Developed countries have therefore pushed strongly for international enforce-ment of IPRs, while developing countries believe that international enforcement will slow technological acquisition and development. The importance of the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreements in the Uruguay round highlights the perceived importance of enforcing IPRs as developing countries liberalize trade