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The Behavioral Effects of (Unenforceable) Contracts†
[“Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools]

Author

Listed:
  • Evan Starr
  • J J Prescott
  • Norman Bishara

Abstract

Do contracts influence behavior independent of the law governing their enforceability? We explore this question in the context of employment noncompetes using nationally representative data for 11,500 labor force participants. We show that noncompetes are associated with reductions in employee mobility and changes in the direction of that mobility (i.e., toward noncompetitors) in both states that do and do not enforce noncompetes. Decomposing mobility into job offer generation and acceptance, we detect no evidence of differences in job search, recruitment, or offer activity associated with noncompetes. Rather, we find that employees with noncompetes—even in states that do not enforce them—frequently point to their noncompete as an important reason for declining offers from competitors. Our data further show that these employees’ beliefs about the likelihood of a lawsuit or legal enforcement are important predictors of their citing a noncompete as a factor in their decision to decline competitor offers.

Suggested Citation

  • Evan Starr & J J Prescott & Norman Bishara, 2020. "The Behavioral Effects of (Unenforceable) Contracts† [“Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 633-687.
    • Handle: RePEc:oup:jleorg:v:36:y:2020:i:3:p:633-687.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewaa018
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    Citations

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    Cited by:

    1. Boeri, Tito & Garnero, Andrea & Luisetto, Lorenzo Giovanni, 2023. "Non-compete Agreements in a Rigid Labour Market: The Case of Italy," IZA Discussion Papers 16021, Institute of Labor Economics (IZA).
    2. Boeri, Tito Michele & Garnero, Andrea & Luisetto, Lorenzo G., 2023. "Non-compete agreements in a rigid labour market: the case of Italy," LSE Research Online Documents on Economics 121338, London School of Economics and Political Science, LSE Library.
    3. Dan A. Black & Lars Skipper & Jeffrey A. Smith & Jeffrey Andrew Smith, 2023. "Firm Training," CESifo Working Paper Series 10268, CESifo.
    4. Andrew Leigh, 2023. "How uncompetitive markets hurt workers," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 26(1), pages 1-21.
    5. Michael Lipsitz & Evan Starr, 2022. "Low-Wage Workers and the Enforceability of Noncompete Agreements," Management Science, INFORMS, vol. 68(1), pages 143-170, January.

    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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