Firm Reputation and Employee Startups

Jan Zabojnik

No 274688, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: This paper studies a repeated-game model in which firms can build a repu- tation for rewarding innovative employees. In any Pareto effcient equilibrium, low-value innovations get developed in established firms, while high-value inno- vations get developed in startups. The threshold level can be discontinuous, so otherwise similar firms may exhibit very different levels of innovation. The paper also shows that the optimal incentive contract for innovative employees has an option-like form, and that a firm may want to worsen the distribution of possible innovations. The model's predictions are consistent with a broad set of observed regularities regarding the creation of employee startups.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 53
Date: 2016-07
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Working Paper: Firm Reputation And Employee Startups (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274688

DOI: 10.22004/ag.econ.274688

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