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Limitations on the customizability of property rights (the numerus clausus principle) are a puzzling feature of the common law conception of property. An economic rationale, built upon 1) the pivotal role that rules of exclusion play in fostering user innovation, and 2) the role that psychological ownership plays in preventing recontracting around governance rules, is offered to explain the modern persistence of the doctrine. Application of the numerus clausus principle limits the proliferation of governance rules in the economy (governance), replacing them with rules of exclusion (exclusion). Exclusion unifies rights of use and possession in assets, while governance separates, to a greater or lesser degree, possession from use rights. Full user, sale and the policy against restraints on alienation are the paradigmatic examples of exclusion; while governance is exemplified by servitudes and contractually-burdened assets. Exclusion plays a critical role in user innovation because it allows the possessors of assets to unilaterally seek out new uses of those assets. Whenever the law replaces governance with exclusion, user innovation is more likely to occur because the possessors of assets can apply their unique, rival and nontransferable human capital inputs to tangible assets, generating outputs (the new uses) that move resources to their higher-value uses. This is how all innovation, both high-tech and low-tech, occurs. In addition to negatively impacting user innovation, governance hinders recontracting because both possession and legal entitlements (rights of use in an asset) give rise to feelings of psychological ownership, and individuals will not recontract over uses that they feel they already ‘own’. The user innovation theory’s focus on search, innovation and human capital explains why the numerus clausus principle remains most robust in the areas of personal and intellectual property (where users generate a significant amount of innovation), and why it has been somewhat attenuated in the area of real property (where we restrict search in order to facilitate coordination of land uses). It also explains why the law enforces the principle even when the cost of providing notice of governance rules is low.

Since China embraced the “Open Door” policy in 1978, innovation has been an increasingly important factor for the Chinese economy. China is now the third largest country in the world league table of patent applications. China has also received large amounts of foreign direct investment, much of it from major Western innovative companies. In the earlier years of the Open Door policy, much of the involvement of Western companies was through joint ventures. International joint ventures are still important, and it is believed have substantially enhanced China's innovative capability. It is the contention of this research that there is a direct correlation between the arrivals of Sino-Western JVs and China's increased innovation capabilities. This is an important area of study as China moves towards becoming a developed economy. The gap in research at present is in applying innovation theory to China and to JVs. The thesis explores the contribution of Sino-Western JVs to the development of China's innovative capabilities. A model of the innovation process is developed, and eight important factors that are considered to enhance a company's innovative capacity, are derived from the model. The factors, expressed as propositions, are: 1: Becoming part of a wide innovative network in its industry 2: Taking part in an open innovation system in its industry 3: Relating closely to universities, and particularly their research laboratories 4: Relating closely to research institutions 5: Developing a social atmosphere conducive to innovation 6: Developing a strong strategic planning system with innovation as a focus 7: Having innovation as a primary objective of both partners at the outset of the joint venture 8: Focusing on developing intellectual property To investigate whether these propositions were accepted by Sino-Western joint ventures, 40 semi-structured interviews were conducted in ten international (Sino-western) joint ventures in China. In general the interviews provided support for the propositions. However, some reservations were expressed. Executives were reluctant to engage in open (collaborative) innovation, preferring to seek patents for developed intellectual property. They also perceived the main objective of the Western partners to be commercial success rather than innovation, although the Chinese partners were very much innovation-orientated. The research contributes to our understanding of the contribution of Sino-western JVs to the innovative capability of Chinese companies, and provides support for most of the propositions identified in the literature. Respondents remarked that most of the propositions would apply also to self-standing companies in China, and suggested that joint ventures could stimulate innovation in indigenous Chinese companies. In addition to providing a historical overview of the development of innovation in China, developing an innovation process model and testing it in the Chinese context, the thesis makes important policy and practical recommendations to Chinese organizations.