Covenants not to Compete, Labor Mobility, and Industry Dynamics

April Franco and Matthew Mitchell

Journal of Economics & Management Strategy, 2008, vol. 17, issue 3, 581-606

Abstract: Conventional wisdom among legal scholars is that contractual restrictions on employee mobility affect turnover and led to the overtaking of Massachusetts' Route 128 by Silicon Valley. We study a model of employee mobility in the spirit of Pakes and Nitzan to see when this can be the case. We show that, in fact, with certain frictions taken into account, a model of employee mobility can not only replicate the overtaking by Silicon Valley, but it can also help to explain Route 128s early dominance. Further, the model explains the relative success of firms that start as, or generate, spin‐outs.

Date: 2008
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https://doi.org/10.1111/j.1530-9134.2008.00187.x

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