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Firm Reputation and Employee Startups

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  • Zabojnik, Jan

Abstract

This paper studies a repeated-game model in which firms can build a repu- tation for rewarding innovative employees. In any Pareto effcient equilibrium, low-value innovations get developed in established firms, while high-value inno- vations get developed in startups. The threshold level can be discontinuous, so otherwise similar firms may exhibit very different levels of innovation. The paper also shows that the optimal incentive contract for innovative employees has an option-like form, and that a firm may want to worsen the distribution of possible innovations. The model's predictions are consistent with a broad set of observed regularities regarding the creation of employee startups.

Suggested Citation

  • Zabojnik, Jan, 2016. "Firm Reputation and Employee Startups," Queen's Economics Department Working Papers 274688, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:274688
    DOI: 10.22004/ag.econ.274688
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    Keywords

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    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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