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

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