1. Optimal enforcement of noncompete covenants
- Author
-
Ghosh, Suman and Shankar, Kameshwari
- Subjects
eBay Inc. -- Contracts -- Laws, regulations and rules ,Labor contracts -- Laws, regulations and rules ,Online information services -- Contracts -- Laws, regulations and rules ,Employers -- Laws, regulations and rules ,Government regulation ,Online information service ,Contract agreement ,Business, general ,Economics - Abstract
Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state-wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as 'no poaching' agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement. (JEL J24, J41, J63, K31), I. INTRODUCTION As knowledge-intensive industries have grown in importance in the last few decades, several recent studies have focused on the role of worker mobility as an important conduit through [...]
- Published
- 2017
- Full Text
- View/download PDF