Working Paper: CEPR ID: DP5779
Authors: Gene M. Grossman; Edwin LC Lai
Abstract: Price controls create opportunities for international arbitrage. Many have argued that such arbitrage, if tolerated, will undermine intellectual property rights and dull the incentives for investment in research-intensive industries such as pharmaceuticals. We challenge this orthodox view and show, to the contrary, that the pace of innovation often is faster in a world with international exhaustion of intellectual property rights than in one with national exhaustion. The key to our conclusion is to recognize that governments will make different choices of price controls when parallel imports are allowed by their trade partners than they will when they are not.
Keywords: intellectual property; pharmaceuticals; reimportation; TRIPS
JEL Codes: F13; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parallel imports (F10) | changes in price controls (E64) |
| changes in price controls (E64) | innovation rates (O39) |
| Parallel imports (F10) | innovation rates (O39) |
| Parallel imports (F10) | higher consumer surplus in the innovative country (O39) |
| Parallel imports (F10) | relax price controls in less innovative country (L59) |