Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses
AbstractWe experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay) . In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2013-038.
Date of creation: 20 Sep 2013
Date of revision:
labor relations; non compete clause; non compete covenant; reciprocity; fairness;
Other versions of this item:
- 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.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
- NEP-EXP-2013-10-02 (Experimental Economics)
- NEP-HRM-2013-10-02 (Human Capital & Human Resource Management)
- NEP-INO-2013-10-02 (Innovation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jordi Brandts & Gary Charness, 2004. "Do Labour Market Conditions Affect Gift Exchange? Some Experimental Evidence," Economic Journal, Royal Economic Society, vol. 114(497), pages 684-708, 07.
- Sampsa Samila & Olav Sorenson, 2011.
"Noncompete Covenants: Incentives to Innovate or Impediments to Growth,"
INFORMS, vol. 57(3), pages 425-438, March.
- Sampsa Samila & Olav Sorenson, 2010. "Non-Compete Covenants: Incentives to Innovate or Impediments to Growth," DRUID Working Papers 10-02, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- Maria Montero & Martin Sefton & Ping Zhang, 2005.
"Enlargement and the Balance of Power: an Experimental Study,"
2005-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Maria Montero & Martin Sefton & Ping Zhang, 2008. "Enlargement and the balance of power: an experimental study," Social Choice and Welfare, Springer, vol. 30(1), pages 69-87, January.
- Maria Montero & Martin Sefton & Ping Zhang, 2005. "Enlargement and the Balance of Power: an Experimental Study," Discussion Papers 2005-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Maria Montero & Martin Sefton & Ping Zhang, 2005. "Enlargement and the Balance of Power: An Experimental Study," Experimental 0507001, EconWPA.
- Belenzon, Sharon & Schankerman, Mark, 2010.
"Spreading the Word: Geography, Policy and University Knowledge Diffusion,"
CEPR Discussion Papers
8002, C.E.P.R. Discussion Papers.
- Sharon Belenzon & Mark Schankerman, 2010. "Spreading the Word: Geography, Policy and University Knowledge Diffusion," STICERD - Economics of Industry Papers 50, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993.
"Does Fairness Prevent Market Clearing? An Experimental Investigation,"
ULB Institutional Repository
2013/5927, ULB -- Universite Libre de Bruxelles.
- Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
- Matthias Kräkel & Dirk Sliwka, 2009. "Should You Allow Your Employee To Become Your Competitor? On Noncompete Agreements In Employment Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 117-141, 02.
- Charness, Gary, 2000. "Self-Serving Cheap Talk: A Test Of Aumann's Conjecture," Games and Economic Behavior, Elsevier, vol. 33(2), pages 177-194, November.
- Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- April M. Franco & Matthew F. Mitchell, 2008. "Covenants not to Compete, Labor Mobility, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 581-606, 09.
- Mark J. Garmaise, 2011. "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment," Journal of Law, Economics and Organization, Oxford University Press, vol. 27(2), pages 376-425.
- Matt Marx & Deborah Strumsky & Lee Fleming, 2009. "Mobility, Skills, and the Michigan Non-Compete Experiment," Management Science, INFORMS, vol. 55(6), pages 875-889, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche).
If references are entirely missing, you can add them using this form.