Start-ups, Spin-offs, and Internal Projects

We examine the incentive problem confronting a firm and employee when the employee privately discovers a significant invention and faces a choice between keeping the invention private and leaving the firm to form a new company (start-up), or transferring knowledge and attempting to gain compensation...

Full description

Saved in:
Bibliographic Details
Published in:Journal of law, economics, & organization economics, & organization, 1995-10, Vol.11 (2), p.362-378
Main Authors: Anton, James J., Yao, Dennis A.
Format: Article
Language:English
Subjects:
Business innovation
Competition
Contracts
Duopolies
Employees
Entrepreneurship
Innovation
Inventions
Monopoly
Product innovation
Property rights
Start up firms
Technological innovation
Trade secrets
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine the incentive problem confronting a firm and employee when the employee privately discovers a significant invention and faces a choice between keeping the invention private and leaving the firm to form a new company (start-up), or transferring knowledge and attempting to gain compensation from the firm (spin-off). We focus on inventions that require little start-up capital and for which property rights are either missing or very weak. In such settings, the employee will sometimes form a new company even though joint profits would have been greater had the invention been developed with the original firm. We also identify when the firm has an incentive to pay a substantial sum to the employee via a spin-off, thereby deterring a start-up. Finally, the basic analysis is applied to examine several issues including specific versus general innovations, trade secret law, and legal "shop rights."
ISSN:8756-6222
1465-7341
1465-7341
DOI:10.1093/oxfordjournals.jleo.a036876