IP Protection Games: Does Technology Type Matter For Entrepreneurial Behavior?

Abstract

This paper builds on an analytical tool for studying entrepreneurship in a new classical general equilibrium framework. The entrepreneurial economy model takes the consumer-producer economy model and makes explicit the role of the entrepreneur. This paper uses it to study entrepreneurial behavior when assumptions regarding contract enforcement and intellectual property rights can be violated. An extended form game involving an entrepreneur and a trading partner is presented. Results show that different subgame perfect equilibria arise depending on whether the venture idea (innovation) is production specific or a general purpose technology. Furthermore, depending on the type of technology, different mechanisms for intellectual property (IP) protection are desirable, in terms of total social utility. This has implications for the way IP laws are crafted and why (one-size-fits-all) patent laws have come under fire. The results give some foundation for the intuition on both sides of the patent law debates. It makes precise when stronger IP protections may be needed to help entrepreneurs and trading partners out of a prisoners type dilemma versus when these laws may not be necessary.