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Trade Secret Laws, Labour Mobility and Innovations

  • Motta, Massimo
  • Rønde, Thomas

We show that when the researcher’s (observable but not contractible) contribution to innovation is crucial, a covenant not to compete (CNC) reduces effort and profits under both spot and relational contracts. Having no CNC allows the researcher to leave for a rival. This alleviates a commitment problem by forcing the firm to reward a successful researcher. However, if the firm’s R&D investment mainly matters, including a CNC in the contract is optimal, as it ensures the firm’s incentives to invest.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3615.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3615
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