Location, Taxation, and Governments : An Exchange Theory of Intellectual Property

The standard economic model of intellectual property is an efficient property rights solution to a market failure problem of investment in a non-rival and non-excludable good. We propose a new ‘stationary bandit’ model of intellectual property based on a contracting approach in the context of market-making and enforcement of economic rights in exchange for monopoly taxation rights. We use a formal Hotelling type model to show the relationship between location and pricing decisions of innovating firms under differing intellectual property regimes, institutional quality, and taxation