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Trade secret laws, labor mobility, and innovations

  • Motta, Massimo

    (European University Institute, Florence)

  • Rønde, Thomas

    (University of Mannheim)

We show that when the researcher’s (observable but not contractible) contribution to innovation is crucial, a covenant not to compete (CNC) reduces e.ort 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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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/6800
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Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 08-2002.

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Length: 34 pages
Date of creation: 01 Sep 2002
Date of revision:
Handle: RePEc:hhs:cbsnow:2002_008
Contact details of provider: Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
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  1. Ariel Pakes & Shmuel Nitzan, 1982. "Optimum Contracts for Research Personnel, Research Employment, and the Establishment of "Rival" Enterprises," NBER Working Papers 0871, National Bureau of Economic Research, Inc.
  2. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
  3. Padilla, Atilano Jorge & Pagano, Marco, 1996. "Endogenous Communication Among Lenders and Entrepreneurial Incentives," CEPR Discussion Papers 1295, C.E.P.R. Discussion Papers.
  4. Fosfuri, Andrea & Motta, Massimo & Rønde, Thomas, 1999. "Foreign Direct Investment and Spillovers through Workers' Mobility," CEPR Discussion Papers 2194, C.E.P.R. Discussion Papers.
  5. Burguet, Roberto & Caminal, Ramon & Matutes, Carmen, 2002. "Golden cages for showy birds: Optimal switching costs in labor contracts," European Economic Review, Elsevier, vol. 46(7), pages 1153-1185, July.
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  7. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
  8. W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
  9. Cassiman, Bruno & Ueda, Masako, 2002. "Optimal Project Rejection and New Firm Start-Ups," CEPR Discussion Papers 3429, C.E.P.R. Discussion Papers.
  10. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  11. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
  12. Farrell, Joseph & Gallini, Nancy T., 1986. "Second-sourcing as a Commitment: Monopoly Incentives to Attract Competition," Department of Economics, Working Paper Series qt8zs1p5cc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  13. Burguet, Roberto & Caminal, Ramon & Matutes, Carmen, 1999. "Golden Cages for Showy Birds: Optimal Switching Costs in Labour Markets," CEPR Discussion Papers 2070, C.E.P.R. Discussion Papers.
  14. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  16. Iain Cockburn & Rebecca Henderson & Scott Stern, 1999. "Balancing Incentives: The Tension Between Basic and Applied Research," NBER Working Papers 6882, National Bureau of Economic Research, Inc.
  17. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  18. Thomas Rønde, 2001. "Trade Secrets and Information Sharing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 391-417, 09.
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