Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110870
Authors: 
Rauch, James E.
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5370
Abstract: 
We investigate entry in a dynastic entrepreneurship (overlapping generations) environment created by employee spinoffs. Without finance constraints, enforcement of non-compete agreements unambiguously improves social welfare outcomes, and even increases the rate of spinoffs from original firms. Indeed, if employers have all the bargaining power vis-à-vis their employees, optimal entry of original firms and all subsequent employee spinoffs is achieved, despite the fact that the original firm can only negotiate with the first spinoff. However, if employees are unable to buy out their non-compete contracts, enforcement of these agreements shuts down socially profitable spinoff firms. Non-enforcement sacrifices entry of original firms that would be marginally profitable in the absence of employee spinoffs, but otherwise clearly improves social welfare outcomes over enforcement in the presence of finance constraints.
Subjects: 
entrepreneurship
entry
finance constraints
non-competes
overlapping generations
spinoffs
JEL: 
K12
L26
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.