Patents, Patent Expirations, Offshoring of Jobs, and Incentives for Efforts at Innovation : General Equilibriums

Suppose a firm that produces `manufactureds', and that is located in a `high (production) cost' country is granted a patent and seeks to protect itself against competition which feasibly emerges at expiration of patent protection. Formal theoretical predictions show setting up of production in the high cost country at origin time, and relocation of production to a `low cost' country at patent expiration Pareto dominate every other feasible strategy, as such, is first-best strategy. In light of stated finding, access to lower costs of production is not a sufficient condition for optimality of offshoring decisions. Given higher quality of labor in the high cost country is necessary condition for Pareto dominance of the first-best strategy, sharing of some of the economic surplus with labor (as `bonuses') is prediction of economics theory. The formal theory shows payout of the future value of labors' annual bonuses at timing of offshoring Pareto dominates payout of bonuses as increase to yearly wages. If, prior to patent expiration, a `new innovation' that facilitates retention of production jobs arrives in same firm, it is Pareto dominant for labor to give up some proportion of its aggregate bonus for investments in R&D. Stated proportion has a strict upper bound and, in entirety, is function of welfare of labor. In aggregate, there is arrival at an equilibrium that, with pursuit of innovation at its core, incentivizes professionalization of careers in manufacturing. There is arrival also at an equilibrium for transfers of technology between high and low cost countries