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Innovation Motivation: Behavioral Effects of Post-Employment Restrictions

On Amir

University of California, San Diego (UCSD) - Rady School of Management

Orly Lobel

University of San Diego School of Law; Harvard Law School

July 13, 2010

San Diego Legal Studies Paper No. 10-32

While post-employment restrictions may encourage firms to invest in employee skill and research and development (R&D), such restrictions may also under certain circumstances discourage employees from investing in their own human capital and work performance. The article reports the findings of an original experimental study designed to unpack the effects of post-employment restrictions on task performance. The results demonstrate that under certain conditions of contractual restrictions, when tasks involve pure effort and are relatively easy to perform, individuals will abandon the tasks at higher rates, spend less time on task, and overwhelmingly fail more often to find the correct solution. At the same time, our findings show that under the same restrictions but different types of tasks – tasks that invoke internal talent and creativity rather than pure effort – some of these effects, including time on task and quality of performance, largely disappear. Significant gaps in task completion remain even under the more creative tasks. Traditional economic models view post-employment restrictions, primarily covenants not-to-compete, as necessary limitations stemming from the assumption that absent such contractual protections, employers would under-invest in research and development and employee training. This study enriches the analysis of human capital development and proposes a dyadic-dynamic investment model. It demonstrates in an experimental setting that regulatory and contractual background affects motivation and performance. The article complements recent empirical evidence about positive spillovers effects stemming from increased labor mobility with a behavioral analysis that suggests further positive effects, offering a nuanced view of the costs and benefits of post-employment contractual and regulatory restrictions.

Number of Pages in PDF File: 47

Keywords: behavioral economics, law and psychology, experimental economics, task performance, IP, employment, post-employment restrictions, labor market mobility, non-competes, EIP, motivation, contract, innovation, spillovers, human capital

JEL Classification: C7, D43, C91, J2, J31, J41, j6, K31, K12, J24, R58

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Date posted: July 14, 2010 ; Last revised: December 22, 2013

Suggested Citation

Amir, On and Lobel, Orly, Innovation Motivation: Behavioral Effects of Post-Employment Restrictions (July 13, 2010). San Diego Legal Studies Paper No. 10-32. Available at SSRN: http://ssrn.com/abstract=1639367

Contact Information

On Amir
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-2023 (Phone)
858-534-0745 (Fax)
HOME PAGE: http://management.ucsd.edu/faculty/directory/amir/
Orly Lobel (Contact Author)
University of San Diego School of Law ( email )
5998 Alcala Park
San Diego, CA 92110-2492
United States
HOME PAGE: http://home.sandiego.edu/%7Elobel/
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
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