Understanding Agreements on TRIPS and Subsidies in Tandem

Abstract

We provide a theoretical framework to explain why governments seek stronger protection of IPRs and allow R&D subsidies through multilateral trade agreements such as the TRIPS Agreement and the Agreement on Subsidies. Our analysis indicates that it is globally optimal to disseminate knowledge without IPR protection and to subsidize inventive firms when issues of IPR protection and R&D subsidies are considered in tandem. R&D subsidies are a means of amending for damages to investors' incentives by weak IPR protection. In addition, the TRIPS Agreement is understood as a victory of the interests of exporting countries over those of importing countries.