Trade Secrets, Firm-Specific Human Capital, and Optimal Contracting

Trade secrets are innovations jointly produced by firms and employees that are generally not protected by patents. They are commonly protected within the framework of labor contracts, where an obligation of confidentiality is imposed upon the employee. Specifically this obligation applies to the employee even after he has left the employer for a period of time determined in the contract, known as a cooling off period. Often employees are prohibited not only from revealing trade secrets, but also from utilizing their specific human capital developed at the original place of employment in competitor firms during this period. Their specific human capital is in effect inseparable from the trade secret. Failure to protect the trade secret will result in its revelation and its becoming public and hence worthless for the innovator. The inability of an employee to reveal trade secrets and utilize his specific human capital after leaving his place of employment imposes costs and losses upon him. Some form of compensation will be paid for these contingent losses within the employment contract. Employers know that the longer the cooling off period imposed upon employees, the greater employees must be compensated for this in the contract. Longer cooling off periods thus cost the employer more, but also enable him to earn greater rents from the innovation itself. In this paper profit-maximizing periods of trade secret protection are derived, based on these two countervailing factors, and comparative statics exercises are performed. How the selection of profit-maximizing periods of trade secret protection when the incidence of resignation is itself affected by contract parameters and incentives is explored.     

Retaining agricultural activities under urban pressures: A review of land use conflicts and policies

From a national perspective it is unclear whether the continued expansion of urban development seriously affects America's potential food production over the long run. Yet there are clearly regional biases toward conversion of farmland to urban uses and locally important changes in the appearance of the landscape at the rural—urban fringe. Urbanization also generates spillover effects causing the idling of farmland and the shifting from one type of agriculture to another.Land use controls aimed at directly addressing the use of the land may be effective in preventing some conversion of farmland to urban uses but the methods are costly and possibly very complex. Incentives to farmers to keep land in agriculture are generally too weak to be effective in retaining agricultural land in the face of strong urban pressures.This research was supported by a grant from the National Science Foundation (Research Applied to National Needs) to the Regional Science Research Institute.     

Blind consent? A social psychological investigation of non-readership of click-through agreements

Across two studies we aimed to measure empirically the extent of non-readership of click-through agreements (CTAs), identify the dominant beliefs about CTAs contributing to non-readership, and experimentally manipulate these beliefs to decrease automatic non-reading behavior and enhance contract efficiency. In our initial questionnaire study (Study 1), as predicted, the vast majority of participants reported not reading CTAs and the most prevalent beliefs about CTAs contributing to nonreadership included: they are too long and time-consuming, they are all the same, they give one no choice but to agree, they are irrelevant, and vendors are generally reputable. Manipulating these beliefs on a simulated music website (Study 2) revealed an increase in readership. In addition, CTA comprehension and CTA rejection rates were both increased significantly by manipulating the length of the CTA. These results demonstrate support for the influence of widely held beliefs about CTAs on contract readership, provide evidence against the common "limited cognition" perspective on non-readership, and suggest that presenting CTAs in a short, readable format can increase CTA read-ership and comprehension as well as shopping of CTA terms. (PsycINFO Database Record (c) 2012 APA, all rights reserved).     

Misplaced Applications of Economic Theory to the Middle East

Tyler Cowen in this issue proposes an application of publicchoice and game theory as a means of understanding the MiddleEast conflict and viewing the ``Road Map for Middle EastPeace''. Cowen's approach is not based on appreciation of the``hidden agendas and rules of the game'' that are present inthe Middle East. Economic theory may indeed usefullycontribute to understanding aspects of the Middle East war,but through different avenues and in different directions fromthose suggested by Cowen. In this paper I suggest a viewconsistent with the institutional characteristics of theconflict and the objectives of the participants.