North-South technology transfer through licensing

The incentives of Southern governments to protect intellectual property rights are examined when Northern innovating firms license technology to Southern firms in a game with asymmetric information. Southern firms may or may not be able to imitate after they license the technology, and Northern firms do not know whether the Southern firm can imitate. The form of the licensing contract and the distribution of the gains from licensing will affect the incentives of Southern countries to protect patents. Southern consumers gain from patent infringement but at the expense of Southern firms that cannot acquire licenses at the most favorable terms.