Abstract
Why do skilled services firms use non-compete agreements (NCAs), which prohibit workers from leaving firms and competing against them? We conduct a survey of physicians linking NCA use to labor-market outcomes and firm performance, and show that by deterring poaching of patients NCAs increase the return to job-tenure, with larger effects in states with more enforceable NCA laws. These effects are consistent with NCAs enabling practices to allocate clients to new physicians through intra-firm referrals, reducing a form of investment holdup. We discuss an array of supporting suggestive evidence, but also find NCAs provide some benefits by reducing job turnover.
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