| Summary: | Purpose - The purpose of this paper is to integrate the empirical and game theoretical approaches to address the strategic interactions among countries in choosing their optimal levels of intellectual property rights (IPRs), and to identify how these countries can reach an efficient and equitable equilibrium. Design/methodology/approach - Because countries' decisions on which IPR standards and protections to implement are interrelated, the authors apply game theory to characterize the scenarios before and after the 1994 Agreement on Trade-related Intellectual Property Rights (TRIPS) involving developed and developing countries. Findings - The model shows that the pre-TRIPS equilibrium is comprised of high-income (H-I) developed countries which choose a strong IPR protection while the middle-income (M-I) and low-income (L-I) developing countries choose a weak IPR standard. For countries to move from such an equilibrium to the uniformly strong IPR regime under TRIPS, it is necessary for the H-I countries to compensate L-I and M-I countries that do not have the sufficient conditions to attract knowledge/technology transfer This compensation covers IPR protection implementation costs and increased royalties for patents. Research limitations/implications - The model proposed in this study is not complex. In reality, the payoff functions can have more variables and parameters, which, however, may also complicate the model and lower its generalizability, Originality/value - The study explains that it is difficult for countries to reach an efficient and equitable equilibrium without the subsidies and side-payments from the developed countries to the developing countries. It builds an important bridge between the game theoretical approach and the empirical studies of TRIPS, which can be further enriched and tested. It acknowledges that it is more likely for stronger IPR standards (as in TRIPS) to be implemented than an open source approach.
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