Client relationships create value, which employees may try to wrest from their employers by setting up their own firms. If when an employer and worker establish a relationship they cannot contract on the output and profits of the worker's prospective new firm, the employer counters by inducing the worker to sign a contract that prohibits him from competing or soliciting the current client in the event of termination of employment. The socially optimal level of entrepreneurship will nevertheless be achieved if clients, employers, and workers can renegotiate these restrictive employment contracts and make compensating transfers. If workers cannot finance transfers to employers, however, employers and workers will sign contracts that are too restrictive and produce too little entrepreneurship, and governments can increase welfare by limiting enforcement of these contracts. With or without liquidity constraints, locations where non-compete contracts are less enforced will attract more clients and have higher employment and output.
|Date of creation:||Apr 2010|
|Publication status:||published as James E. Rauch & Joel Watson, 2015. "Client-Based Entrepreneurship," Journal of Law, Economics and Organization, Oxford University Press, vol. 31(1), pages 30-60.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mariagiovanna Baccara & Ronny Razin, 2009. "Innovation and Corporate Conservatism," Working Papers 09-09, New York University, Leonard N. Stern School of Business, Department of Economics.
- Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters,in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
- Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, December.
- Sönje Reiche, 2006. "Ambivalent Investment and the Hold-Up Problem," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1148-1164, December.
- Watson, Joel & Buzard, Kristy, 2012.
"Contract, renegotiation, and hold up: Results on the technology of trade and investment,"
Econometric Society, vol. 7(2), May.
- Watson, Joel & Buzard, Kristy, 2009. "Contract, Renegotiation, and Hold Up: General Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series qt3923q7kz, Department of Economics, UC San Diego.
- Ono, Yukako, 2003. "Outsourcing business services and the role of central administrative offices," Journal of Urban Economics, Elsevier, vol. 53(3), pages 377-395, May.
- Yukako Ono, 2002. "Outsourcing business services and the role of central administrative offices," Working Paper Series WP-02-01, Federal Reserve Bank of Chicago.
- Thomas H. Klier & William A. Testa, 2002. "Location trends of large company headquarters during the 1990s," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 12-26.
- Martin Ruef, 2002. "Strong ties, weak ties and islands: structural and cultural predictors of organizational innovation," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 427-449, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15933. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.