Win Shift Lose Stay – An Experimental Test of Non-Compete Clauses

30 Pages Posted: 25 Sep 2013

See all articles by Guido Bünstorf

Guido Bünstorf

Max Planck Institute for Research into Economic Systems - Evolutionary Economics Group

Christoph Engel

Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students; Universität Osnabrück - Faculty of Law

Sven Fischer

University of Newcastle - Economics

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 2013

Abstract

We experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay). In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort.

Keywords: reciprocity, fairness, labor relations, non compete clause, non compete covenant

JEL Classification: D21, J33, L51, J38

Suggested Citation

Bünstorf, Guido and Engel, Christoph and Fischer, Sven and Güth, Werner, Win Shift Lose Stay – An Experimental Test of Non-Compete Clauses (September 2013). MPI Collective Goods Preprint, No. 2013/17. Available at SSRN: https://ssrn.com/abstract=2330262 or http://dx.doi.org/10.2139/ssrn.2330262

Guido Bünstorf

Max Planck Institute for Research into Economic Systems - Evolutionary Economics Group ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany
+49 3641 68 68 21 (Phone)
+49 3641 68 68 68 (Fax)

HOME PAGE: http://www.mpiew-jena.mpg.de/english/staff/buenstorf.html

Christoph Engel

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+049 228 914160 (Phone)
+049 228 9141655 (Fax)

HOME PAGE: http://www.coll.mpg.de/engel.html

University of Bonn - Faculty of Law & Economics

Postfach 2220
D-53012 Bonn
Germany

Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students ( email )

Burgemeester Oudlaan 50
PO Box 1738
Rotterdam
Netherlands

Universität Osnabrück - Faculty of Law

Osnabruck, D-49069
Germany

Sven Fischer (Contact Author)

University of Newcastle - Economics ( email )

Newcastle-upon-Tyne NE1 7RU
United Kingdom

Werner Güth

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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