DP3615 Trade Secret Laws, Labour Mobility and Innovations
|Author(s):||Massimo Motta, Thomas Rønde|
|Publication Date:||October 2002|
|Keyword(s):||innovation, intellectual property rights, labour contracts, poaching, relational contracts, start-ups|
|JEL(s):||J30, K20, L14, O31, O34|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3615|
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.