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

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  • Buenstorf, Guido
  • Engel, Christoph
  • Fischer, Sven
  • Gueth, Werner

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.

Suggested Citation

  • Buenstorf, Guido & Engel, Christoph & Fischer, Sven & Gueth, Werner, 2016. "Non-compete clauses, employee effort and spin-off entrepreneurship: A laboratory experiment," Research Policy, Elsevier, vol. 45(10), pages 2113-2124.
    • Handle: RePEc:eee:respol:v:45:y:2016:i:10:p:2113-2124
    DOI: 10.1016/j.respol.2016.08.005
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