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Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses

Author

Listed:
  • Guido Bünstorf

    (University of Kassel)

  • Christoph Engel

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Sven Fischer

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Werner Güth

    (Max Planck Institute of Economics, Jena)

Abstract

We experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay) . In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort.

Suggested Citation

  • Guido Bünstorf & Christoph Engel & Sven Fischer & Werner Güth, 2013. "Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_17, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2013_17
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    References listed on IDEAS

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    More about this item

    Keywords

    reciprocity; fairness; labor relations; non compete clause; non compete covenant;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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