Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses

Guido Bünstorf (), Christoph Engel, Sven Fischer () and Werner Güth ()
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Guido Bünstorf: University of Kassel
Sven Fischer: Max Planck Institute for Research on Collective Goods, Bonn
Authors registered in the RePEc Author Service: Guido Buenstorf

No 2013-038, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay) . In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort.

Keywords: labor relations; non compete clause; non compete covenant; reciprocity; fairness (search for similar items in EconPapers)
JEL-codes: D21 J33 J38 L51 (search for similar items in EconPapers)
Date: 2013-09-20
New Economics Papers: this item is included in nep-exp, nep-hrm and nep-ino
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Working Paper: Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses (2013)
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