Driving Performance : A Growth Theory of Noncompete Law

Traditional law and economic analysis views postemployment restrictions, ranging from noncompete agreements to intellectual property controls over an ex-employee’s knowledge and skill, as necessary for economic investment and market growth. The orthodox economic analysis theorizes that without such contractual and regulatory protections, businesses would underinvest in research, development, and human capital. This Article challenges the orthodox analysis by introducing both behavioral dimensions and endogenous growth effects of job mobility over time. The article empirically tests the behavioral dimension with original experimental research demonstrating that contractual backgrounds in market relations impact motivation and performance. The behavioral study, simulating a job market, finds that participants constrained by postemployment restrictions significantly under-performed in the assigned experimental tasks. The Article integrates these experimental findings with new empirical evidence about positive spillovers, network effects, and economic growth in jurisdictions with lesser legal constraints on job mobility and information flows. The behavioral and dynamic growth effects elaborated in the article help explain regional advantage in patenting rates, entrepreneurship, and market growth of jurisdictions that employ weaker human capital controls. Combining the behavioral and network perspectives, the article develops a new lens through which to analyze the costs and benefits of human capital restrictions