International free riding on institutions
Department
Economics, Finance and Quantitative Analysis
Document Type
Article
Publication Date
2-1-2021
Abstract
Economic institutions are linked to economic growth because they create conditions favourable for production and exchange. Institutions can give a country comparative advantage in producing some goods. If its trading partners lack such institutions, it can still enjoy their benefits by importing these goods. Some institutions, such as intellectual property rights, have non-excludable benefits because the resulting production is intangible, non-rival, and often publicly disclosed. The profits, or surplus, that result, however, is rival. Foreign countries can ‘free ride’ on this benefit by misappropriating rival surplus through infringement. This article develops a theory of institutional free riding in which firms in one country free ride on the benefit of foreign institutions to the detriment of their competitor firms and their countries' institutions. It evaluates the incentives of firms and governments for this free riding, its effects, and potential responses to mitigate these effects.
Journal Title
Economic Affairs
Journal ISSN
02650665
Volume
41
Issue
1
First Page
123
Last Page
140
Digital Object Identifier (DOI)
10.1111/ecaf.12452