Covenants Not to Compete, Labor Mobility, and Industry Dynamics

26 Pages Posted: 15 Aug 2008

See all articles by April Franco

April Franco

University of Toronto - Rotman School of Management; University of Toronto at Scarborough - Division of Management

Matthew F. Mitchell

Rotman School of Management

Abstract

Conventional wisdom among legal scholars is that contractual restrictions on employee mobility affect turnover and led to the overtaking of Massachusetts' Route 128 by Silicon Valley. We study a model of employee mobility in the spirit of Pakes and Nitzan to see when this can be the case. We show that, in fact, with certain frictions taken into account, a model of employee mobility can not only replicate the overtaking by Silicon Valley, but it can also help to explain Route 128s early dominance. Further, the model explains the relative success of firms that start as, or generate, spin-outs.

Suggested Citation

Franco, April and Mitchell, Matthew F., Covenants Not to Compete, Labor Mobility, and Industry Dynamics. Journal of Economics & Management Strategy, Vol. 17, Issue 3, pp. 581-606, Fall 2008. Available at SSRN: https://ssrn.com/abstract=1227202 or http://dx.doi.org/10.1111/j.1530-9134.2008.00187.x

April Franco (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

Matthew F. Mitchell

Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada

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