EconPapers    
Economics at your fingertips  
 

Signaling, reputation and spinoffs

Suraj Shekhar

Journal of Economic Behavior & Organization, 2018, vol. 149, issue C, 88-105

Abstract: I propose a new channel of spinoff (firm formed when an employee leaves to set up his own firm) formation in which the returns from spinning off are determined endogenously. If high ability workers are scarce, then despite the principal’s ability to offer contracts (endogenous cost of signaling), there exists a separating equilibrium where the high type worker signals his ability by forming a spinoff. This result provides theoretical support to the empirical findings of Skogstrøm (2012). When moral hazard is introduced in the baseline model of adverse selection, I show that the spinoff equilibrium can generate the strongest incentives to work. This has policy implications for non-compete clauses.

Keywords: Reputation; Signaling; Spinoff; Entrepreneurship; Moral hazard; Adverse selection (search for similar items in EconPapers)
JEL-codes: D02 D81 L14 L26 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016726811830057X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:149:y:2018:i:c:p:88-105

DOI: 10.1016/j.jebo.2018.02.025

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-31
Handle: RePEc:eee:jeborg:v:149:y:2018:i:c:p:88-105