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Abstract:
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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.
JEL Codes: J3, K2, L14, O31, O34.
Keywords: Innovation, intellectual property rights, labor contracts, poaching, relational
contracts, start-ups. |
This work is licensed under a Creative Commons License.
