Universal intellectual property rights: Too much of a good thing?

•The paper studies countries’ incentives to protect Intellectual Property Rights.•We propose a model of incremental innovation which enhances the quality of the goods.•Asymmetric IPR, strict in the North and lax in the South, can increase innovation.•IPR enforcement is U-shaped in the relative size of the domestic market. Developing countries’ incentives to protect intellectual property rights (IPR) are studied in a model of vertical innovation. Enforcing IPR boosts export opportunities to advanced economies but slows down technological transfers and incentives to invest in R&D. Asymmetric protection of IPR, strict in the North and lax in the South, leads in many cases to a higher world level of innovation than universal enforcement. IPR enforcement is U-shaped in the relative size of the export market compared to the domestic one: rich countries and small/poor countries enforce IPR, the former to protect their innovations, the latter to access foreign markets, while large emerging countries free-ride on rich countries’ technology to serve their internal demand.