Economics of Intellectual Property Rights (IPR) for Genetic Resources: North-South Cooperation in Sequential R and D

Abstract

This paper analyzes the interaction between North (technology rich and gene poor) and South (gene rich but technology poor) in relation to bioprospecting in the life sciences industries. This sector is modeled as a vertical industry with a sequential R and D process where both contributions from North and South are necessary to develop new drugs. This sector relies upon the quasi free access of the South's contribution (genetic resources and traditional knowledge), which may result in an inefficiently low supply of useful information from the South. This article investigates the case for protecting the South's information with intellectual property rights. Using a North-South game we shed light on the importance of the placement of such rights for efficiency and the implication for the division of profit across the R and D process. The property right substantiates the South's threat to enter the North's market if it is not compensated adequately and the capacity to extract the value of its R and D contribution. We show that under complete information the existence of an enforced property right in the genetic resources alone may lead to an efficient outcome through North-South cooperation.