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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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  17. 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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