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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.:IZA Discussion Papers 2054
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 sufficiently 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
incentive
incomplete contracts
non-compete agreements
option contract
JEL:D21
D86
J3
K1
M5
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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