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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 08-2002:
Trade secret laws, labor mobility, and innovations

Massimo Motta and Thomas RÝnde

Abstract: We show that when the researcherís (observable but not contractible) contribution

to innovation is crucial, a covenant not to compete (CNC) reduces e.ort 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 firmís R&D investment mainly matters,

including a CNC in the contract is optimal, as it ensures the firmís incentives to

invest.

Keywords: Innovation; intellectual property rights; labor contracts; poaching; relational contracts; start-ups; (follow links to similar papers)

JEL-Codes: J30; K20; L14; O31; O34; (follow links to similar papers)

34 pages, September 1, 2002

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