قراردادها، حقوق مالکیت معنوی، و سرمایه گذاری های چند ملیتی در کشورهای در حال توسعه

The policy debate between multinational firms favoring strong contract law, and host-country governments who often oppose such protection motivates the paper. Local agents (managers) learn the multinational’s technology and can defect to start a rival firm. Contract enforcement, including binding the multinational itself, makes the multinational better off. Outcomes for the host country are more complex, depending on mode switches induced by enforcement. If enforcement induces the multinational to switch from exporting to local production, welfare improves. If local production was occurring anyway, enforcement may result in the loss of rents to local agents and lower welfare.

Property rights, enforceable contracts and intellectual property protection (IPP) have been an important policy issue for a number of years, with the US in particular insistent that developing countries adopt higher standards. The developing countries in turn resist such pressure, seeing IPP as largely leading to a rent transfer to the high-income developed countries. The debate over IPP is just part of a wider debate about general property rights for foreign firms, contract and bankruptcy law, and other legal infrastructure for the transition economies. This policy debate has a parallel in the economics profession, with a literature on IPP, technology transfer, and so forth. Most of this literature addresses how the institution of IPP (which affects the costs of imitation) affects equilibrium rates of innovation (level of R&D) in the north, imitation rates in the south, and southern welfare. A typical result might be that the institution of IPP, for example, lowers imitation in the south, but also lowers innovation (R&D) in the north in the long run. Theory papers include Chin and Grossman (1988), Diwan and Rodrik (1991), Grossman and Helpman (1991), Helpman (1993), Taylor (1994), Glass and Saggi (1995), Segerstrom (1995), Lai (1998), and Yang and Maskus (2000). This paper takes a different but complementary approach, adopting a small-numbers, strategic-behavior approach to the same general problem. I build on Ethier and Markusen (1996), in which a MNE hires a local ‘agent’ (manager) in the host country (see also Fosfuri et al., 1997). The agent learns the technology in the first period of a two-period product cycle, and can defect to start a rival firm in the second period. The MNE can similarly dismiss the agent at the beginning of the second period and hire a new agent. The double-sided moral hazard is crucial to some of the interesting results in this paper, and is a consideration not found in any of the other papers referenced above. Contract enforcement and/or IPP is modelled simply as a cost imposed on the defecting party (or perhaps only on the agent). I consider the choice between exporting and a subsidiary. Cases where a subsidiary is chosen can be divided into a case where the MNE captures all rents and one in which it shares rents with the local agent. The institution of contract enforcement may lead to a shift from exporting to a local subsidiary. This is rather obvious, but I want to note its consistency with the recent empirical results of Smith (1998), which therefore lend some support to this type of model. A mode switch from exporting to a subsidiary improves the welfare of both the MNE and the host country. But if a subsidiary was chosen initially, contract enforcement leads to either no change or to a fall in host-country welfare. In the latter case, there is a rent transfer from the local agent to the MNE. One interesting result is that binding both the MNE and the agent is worse for the agent and better for the MNE than binding the agent alone (as in intellectual property protection). The reason is that a contract enforceability constraint on the MNE allows it to credibly offer a lower licensing or royalty fee in the second period of a product cycle. But this lower second-period fee then allows it to offer a lower rent share to the agent and still satisfy the latter’s incentive-compatibility constraint. The optimal policy for a developing country is to set the level of contract enforcement just high enough to induce entry. A final section of the paper considers a few extensions. (A) There are several identical firms, a proxy for the level of competition in inward investment, (B) there are MNEs in different industries which enter at different levels of contract enforcement, and (C) a case in which duopoly competition occurs in the second period between the MNE and a (defecting) original agent. I hope that the paper captures the essence of the policy debate over IPP and other legal institutions. The model suggests that there is indeed a tension over the benefits of inward investment and the transfer of rents from poor developing countries to first-world MNEs.

This paper presents a simple model, following Ethier and Markusen (1996), in order to improve our understanding of how contract enforcement, IPP, etc. influence foreign direct investment into host economies, and host-country welfare. In the model, the local agent learns the necessary technology in order to produce the good in the first period of a two-period product cycle, and can quit (defect) to start a rival firm in the second period. The MNE can similarly defect, firing the agent and hiring a new one. We solve for the optimal mode of serving the foreign market as a function of various parameter values. The principal result is both MNE profits and host-country welfare are improved by the institution of contract enforcement if it leads to a mode shift from exporting to production within the host economy. Exporting dissipates rents and results in a higher product price in the host country, so domestic production results in a consumer-surplus gain and may result in rent capture by the local agent. Contract enforcement leaves host-country welfare unchanged or reduces welfare, however, if a subsidiary was chosen prior to the policy change. In the latter case, rents are transferred from the local agent to the MNE, precisely the scenario feared by many developing countries. Other results include the fact that the MNE is better off and the agent worse off if the MNE is bound by a contract than if it is not. A binding contract allows the MNE to credibly commit to a lower second-period licensing fee, which lowers the amount of rents it must share with the agent in order to ensure incentive-compatibility for the agent. MNEs thus benefit from a strong commitment to the ‘rule of law’, and benefit as much from their own commitment as they do from bindings on local agents. The optimal level of enforcement occurs when the level of P is set to just induce entry (subject to a non-negativity constraint on P). Unlike optimal Pigouvian taxes, the optimal P is not given by a marginal condition, but requires a setting the MNEs profits from discrete alternatives equal to one another. The paper concludes with a few extensions of the basic argument. These are unfortunately largely ambiguous. For example, it is not clear whether a larger or more competitive environment in the form of several identical foreign MNEs calls for a lower or higher optimal P. A low P may lead to second-period duopoly between the MNE and its original manager, but the welfare effects of this are unclear. More managers are trained under the duopoly outcome and local firms are formed. While these have no welfare implications in the present model, they might have in a somewhat richer model with various kinds of spillover effects. Somewhat clearer results emerge if there are a series of potential investors who would enter a different levels of P. Optimality requires that the consumer-surplus plus managerial-rent gain from an additional investment attracted by raising P just equals the infra-marginal losses in rents to the agents of existing projects. While that condition is simple in theory, it is not easy to implement or calculate in practice. Ideally, the host-country government could do better with an individual P for each foreign investment project. That is a rather awful thought, but in fact countries or US states do indeed negotiate individual deals on large projects (not necessarily to their benefit!). There could be a set legal policy, tax rates, and so forth, with special incentives or discounts offered to certain firms. I do not wish to go on record as advocating this, but it does offer a theoretical way out of the dilemma of a single policy balancing marginal gains of a higher P against infra-marginal losses. Under a uniform policy for example, China has to weigh the gains from a new factory against infra-marginal rent transfers to Mickey Mouse (Disney). In summary, I hope that the model captures some of the policy debate over intellectual property rights and other legal institutions. There is clearly some truth in the developed-countries’ view that developing countries can benefit from more investment that follows stronger legal protection for investors. On the other hand, there is clearly some validity in the developing countries’ view that such protection only enriches the MNEs, and requires the poor countries to pay more for pharmaceuticals, software, and other products. Results show that which view dominates depends on the initial situation, and whether or not inward investment is occurring anyway in the absence of strong investor protection.