Working Paper: CEPR ID: DP14256
Authors: Stefano Bolatto; Alireza Naghavi; Gianmarco Ottaviano; Katja Zajc Kejzar
Abstract: This paper introduces the concept of intangible assets in a property rights model of sequential supply chains. Firms transmit knowledge to their suppliers to facilitate input customization. Yet, to avoid knowledge dissipation, they must protect the transmitted intangibles, the cost ofwhich depends on the knowledge intensity of inputs and the quality of institutions protecting intellectual property rights (IPR) in supplier locations. When input knowledge intensity increases (decreases) downstream and suppliers' investments are complements, the probability ofintegrating a randomly selected input is decreasing (increasing) in IPR quality and increasing (decreasing) in the relative knowledge intensity of downstream inputs. Opposite but weaker predictions hold when suppliers' investments are substitutes. Comprehensive trade and FDI data on Slovenian firms' value chains provide evidence in support of our model's predictions. They also suggest that, in line with our model, better institutions may have very different effects on fi rm organization depending on whether they improve the protection of tangible or intangibleassets.
Keywords: sequential production; intellectual property; intangible assets; appropriability; stage complementarity; upstreamness; firm organization; outsourcing; vertical integration
JEL Codes: F12; F14; F21; F23; D23; L22; L23; L24; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Knowledge intensity of inputs (C67) | Firms' organizational choices between integration and outsourcing (L24) |
| Quality of institutions protecting IPR (O34) | Firms' organizational choices between integration and outsourcing (L24) |
| Input knowledge intensity increases (D83) | Probability of integrating a randomly selected input decreases (C69) |
| Input knowledge intensity increases (D83) | Probability of integrating a randomly selected input increases (C25) |
| Improvement in IPR quality (O34) | Likelihood of integration increases (F15) |
| Improvement in IPR quality (O34) | Likelihood of integration decreases (F15) |
| IPR quality (L15) | Probability of integrating inputs is sensitive to upstreamness of inputs along the value chain (C69) |
| Quality of institutions protecting IPR (O34) | Effects differ based on protection of tangible/intangible assets (O34) |