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Title:Should You Allow Your Agent to Become Your Competitor?: On Non-Compete Agreements in Employment Contracts PDF Logo
Authors:Kräkel, Matthias
Sliwka, Dirk
Issue Date:2006
Series/Report no.:Bonn econ discussion papers 2006,4
Abstract:We discuss a principal-agent model in which the principal has the opportunity to include a non-compete agreement in the employment contract. We show that not imposing such an agreement can be beneficial for the principal as the possibility to leave the firm generates implicit incentives for the agent. The principal prefers to impose such a clause if and only if the value created is su? ciently small relative to the agent´s outside option. If the principal can use an option contract for retaining the agent, she will never prefer a strict non-compete agreement.
Subjects:fine
incentives
incomplete contracts
non-compete agreements
option contract
JEL:J3
M5
D86
D21
K1
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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