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Noncompete Agreements and Bargaining Power

Author

Listed:
  • Bhargav Gopal
  • Xiangru Li
  • Luke Rawling

Abstract

Noncompete agreements (NCs) present a trade-off between firm investment incentives and allocative efficiency. We illustrate this trade-off using a contract choice model in which NCs encourage industry-specific investments and wages are determined by bargaining. When worker bargaining power is sufficiently high, the NC and no-NC contracts are identical, as neither contract yields firm-provided investments. When firms have all the bargaining power, NCs encourage industry-specific investments but lower wage growth. Empirically, the wage gains from NCs are driven by nonnegotiators, aligning with our model's interpretation that NCs encourage firms to provide transferable skills when they have substantial bargaining power.

Suggested Citation

  • Bhargav Gopal & Xiangru Li & Luke Rawling, 2026. "Noncompete Agreements and Bargaining Power," AEA Papers and Proceedings, American Economic Association, vol. 116, pages 267-272, May.
    • Handle: RePEc:aea:apandp:v:116:y:2026:p:267-272
    DOI: 10.1257/pandp.20261077
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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