Non-compete clauses, employee effort and spin-off entrepreneurship: A laboratory experiment

Guido Buenstorf, Christoph Engel, Sven Fischer and Werner Gueth

Research Policy, 2016, vol. 45, issue 10, 2113-2124

Abstract: We experimentally test the effect of enforceable non-compete clauses on working effort and spin-off entrepreneurship. An employee invests effort in the probability of a profitable innovation. After a successful innovation the employee may want to start her own spin-off firm and compete with her prior employer. In the baseline setup without non-compete clause, spin-offs result from failed negotiation about employee compensation even though they reduce the joint payoffs of both parties. In two treatments with non-compete clause the employer can prevent successful innovators from leaving the firm. We find no significantly negative effect of non-compete clauses on employee effort, even if compensation is low.

Keywords: Non-compete clause; Effort; Spin-off entrepreneurship; Reciprocity; Fairness (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:45:y:2016:i:10:p:2113-2124

DOI: 10.1016/j.respol.2016.08.005

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