Non-compete Agreements: Barriers to Entry … and Exit?

Executive SummaryThis chapter describes recent research on postemployment covenants not to compete, as well as potential policy implications of such research. We propose that non-competes are an underappreciated lever for policy makers to wield in effecting entrepreneurial outcomes. We review theory and models as well as qualitative and quantitative evidence from ourselves and others, at three levels of analysis. First, how do non-competes impact individual careers? Second, why do firms adopt non-compete agreements, and how do they affect the behavior and performance of firms? Third, what do we know of the regional implications of non-competes for entrepreneurship, productivity, and other measures? We observe that non-competes are generally favorable for established firms though less so for firms that are young, small, or not yet established. These benefits to firms appear to be offset by costs to individual workers, who are often unaware of non-competes when they accept an employment offer and end up wit...