<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872408" rel="nofollow noreferrer">Ghosh and Shankar (2017) "Optimal Enforcement of Noncompete Covenants", <em>Economic Inquiry</em></a></p>

<blockquote>
  <p>Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement.</p>
</blockquote>

<hr>

<p><a href="https://www.jstor.org/stable/41261726" rel="nofollow noreferrer">Garmaise (2011) "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment", <em>Journal of Law, Economics, &amp; Organization</em></a></p>

<blockquote>
  <p>We study the effects of non-competition agreements by analyzing time-series and cross-sectional
  variation in the enforceability of these contracts across U.S. states. We find that tougher noncompetition
  enforcement promotes executive stability. Increased enforceability also results in reduced
  executive compensation and shifts its form towards greater use of salary. We further show
  that stricter enforcement reduces research and development spending and capital expenditures per
  employee. These results are consistent with a model in which enforceable non-competition contracts
  encourage firms to invest in their managers’ human capital. On the other hand, our findings
  suggest that these contracts also discourage managers from investing in their own human capital
  and that this second effect is empirically dominant.</p>
</blockquote>

<hr>

<p>Two other recent empirical papers may also be of interest: </p>

<ul>
<li><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040393" rel="nofollow noreferrer">Jeffers (2018) "The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship"</a></li>
<li><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2556669" rel="nofollow noreferrer">Starr (2018) "Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete"</a></li>
</ul>

CC BY-SA 4.0
2018-08-02T18:14:17.983Z
2018-08-02T18:14:17.983Z
Herr K.
<p>Today I read in a non-scientific article that <a href="https://www.theverge.com/2015/3/26/8280309/amazon-warehouse-jobs-exclusive-noncompete-contracts" rel="nofollow noreferrer">Amazon requires some physical workers to sign non-compete agreements</a>. I used to think that the idea behind allowing non-compete clauses in contracts is to protect a companies' intellectual property. The article mentions that non-competes may also serve to protect a company's investment in case it pays for the employee's education or training. Neither of these seems to fit this case. </p>

<p>What scientific articles (in fields of mathematical economics, such as Industrial Organization) describe models where allowing for non-compete clauses improves the situation of both the employer and the employee?</p>

<reference-request><labor-economics><industrial-organisation>
Articles about the economics of non-compete contracts
Giskard
# Articles about the economics of non-compete contracts

(Asked by: username_0 on 2018-08-01)

Today I read in a non-scientific article that [Amazon requires some physical workers to sign non-compete agreements](https://www.theverge.com/2015/3/26/8280309/amazon-warehouse-jobs-exclusive-noncompete-contracts). I used to think that the idea behind allowing non-compete clauses in contracts is to protect a companies' intellectual property. The article mentions that non-competes may also serve to protect a company's investment in case it pays for the employee's education or training. Neither of these seems to fit this case.

What scientific articles (in fields of mathematical economics, such as Industrial Organization) describe models where allowing for non-compete clauses improves the situation of both the employer and the employee?

**Tags:** reference-request, labor-economics, industrial-organisation

---

## 1 answers

### Answer by username_1 on 2018-08-02. Score: 2 | Accepted answer

[Ghosh and Shankar (2017) "Optimal Enforcement of Noncompete Covenants", *Economic Inquiry*](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872408)

> Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement.

---

[Garmaise (2011) "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment", *Journal of Law, Economics, & Organization*](https://www.jstor.org/stable/41261726)

> We study the effects of non-competition agreements by analyzing time-series and cross-sectional
> variation in the enforceability of these contracts across U.S. states. We find that tougher noncompetition
> enforcement promotes executive stability. Increased enforceability also results in reduced
> executive compensation and shifts its form towards greater use of salary. We further show
> that stricter enforcement reduces research and development spending and capital expenditures per
> employee. These results are consistent with a model in which enforceable non-competition contracts
> encourage firms to invest in their managers’ human capital. On the other hand, our findings
> suggest that these contracts also discourage managers from investing in their own human capital
> and that this second effect is empirically dominant.

---

Two other recent empirical papers may also be of interest:

* [Jeffers (2018) "The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship"](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040393)
* [Starr (2018) "Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete"](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2556669)


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