Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 2023, Volume 91, Issue 2

Optimal Regulation of Noncompete Contracts
p. 425-463

Liyan Shi

I study regulation of noncompete employment contracts, assessing the trade‐off between restricting worker mobility and encouraging firm investment. I develop an on‐the‐job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban.

Full Content

Supplemental Material

Supplement to "Optimal Regulation of Noncompete Contracts"

Liyan Shi

Online Appendix

Supplement to "Optimal Regulation of Noncompete Contracts"

Liyan Shi

Data and Programs

Journal News