Endogenous strength of intellectual property rights: Implications for economic development and growth

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The key institution that determines sustained growth in R&D-based growth models is the strength of intellectual property rights, which are usually assumed to be exogenous. In this paper we endogenize the strength of the intellectual property rights and show how private incentives to protect these rights affect economic development and growth. Our model explains endogenous differences in intellectual property rights across countries as private incentives to invest in property rights generate multiple equilibria. We show that the resulting institutional threshold offers an explanation for why the effect of a transfer of institutions from one country to another depends on the quality of the institutions that were imported.