Should You Allow Your Employee To Become Your Competitor? On Noncompete Agreements In Employment Contracts
AbstractWe discuss a principal-agent model in which the principal has the opportunity to include a noncompete agreement in the employment contract. We show that not imposing such an agreement can be beneficial for the principal, as the possibility to leave the firm generates implicit incentives for the agent. The principal prefers to impose such a clause if and only if the value created is sufficiently small relative to the agent's outside option. If the principal can use an option contract for retaining the agent, she will never prefer a strict noncompete agreement. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 50 (2009)
Issue (Month): 1 (02)
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- Perri Timothy J., 2010.
"Garden Leave vs. Covenants Not to Compete,"
Review of Law & Economics,
De Gruyter, vol. 6(2), pages 167-179, August.
- Guido Bünstorf & Christoph Engel & Sven Fischer & Werner Güth, 2013.
"Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses,"
Jena Economic Research Papers
2013-038, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Guido Bünstorf & Christoph Engel & Sven Fischer & Werner Güth, 2013. "Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_17, Max Planck Institute for Research on Collective Goods.
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