How Non-Compete Agreements Affect CEO Mobility, Job Security, and Compensation

Firms generate profits through investments in physical and human capital.  In legal regimes that recognize property rights, the firm generally has full ownership over its physical capital, as well as the right to future cash flows generated by these assets.  However, human capital is inherently different from other forms of capital because firms cannot “own” employees or the investments made in these employees. Common law, however, sometimes makes an exception for certain restrictive covenants like non-compete agreements – covenants signed by an employee not to compete with her employer for some specified period after employment ends. Non-compete agreements limit employees’ … Read more