Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149088
Authors: 
Zabojnik, Jan
Year of Publication: 
2016
Series/Report no.: 
Queen's Economics Department Working Paper 1362
Abstract: 
This paper studies a repeated-game model in which firms can build a reputation for rewarding innovative employees. In any Pareto efficient equilibrium, low-value innovations get developed in established firms, while high-value innovations get developed in startups. The threshold level can be discontinuous, so otherwise similar firms may exhibit very different levels of innovation. The paper also shows that the optimal incentive contract for innovative employees has an option-like form, and that a firm may want to worsen the distribution of possible innovations. The model's predictions are consistent with a broad set of observed regularities regarding the creation of employee startups.
Subjects: 
Startups
innovation
reputation
venture capital markets
JEL: 
L14
L26
O31
O34
M13
Document Type: 
Working Paper

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