Innovation Motivation: Behavioral Effects of Post-Employment Restrictions

Abstract:     
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

Accepted Paper Series