Dynastic Entrepreneurship, Entry, and Non-Compete Enforcement

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5370

Classification and Topics

• Classification: Wirtschaft ; Contract Law ; Entrepreneurship
• Subject: entrepreneurship ; entry ; finance constraints ; non-competes ; overlapping generations ; spinoffs

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rauch, James E.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/110870
• Last update: 10.03.2025, 11:41 AM CET