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Firm Reputation And Employee Startups

Author

Listed:
  • Jan Zabojnik

Abstract

This paper studies a repeated-game model in which firms can build a reputation for rewarding innovative employees. In any Pareto efficient equilibrium, low-value innovations get developed in established firms, while high-value innovations get developed in startups. The threshold level can be discontinuous, so otherwise similar firms may exhibit very different levels of innovation. The paper also shows that the optimal incentive contract for innovative employees has an option-like form, and that a firm may want to worsen the distribution of possible innovations. The model's predictions are consistent with a broad set of observed regularities regarding the creation of employee startups.

Suggested Citation

  • Jan Zabojnik, 2016. "Firm Reputation And Employee Startups," Working Paper 1362, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1362
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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