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Discussion Paper Details

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Title: Trade Secret Laws, Labour Mobility and Innovations

Author(s): Massimo Motta and Thomas Rønde

Publication Date: October 2002

Keyword(s): innovation, intellectual property rights, labour contracts, poaching, relational contracts and start-ups

Programme Area(s): Industrial Organization

Abstract: We show that when the researcher?s (observable but not contractible) contribution to innovation is crucial, a covenant not to compete (CNC) reduces effort 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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Bibliographic Reference

Motta, M and Rønde, T. 2002. 'Trade Secret Laws, Labour Mobility and Innovations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3615