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.
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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)
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