TY  - JOUR
AU  - Acharya,Viral V.
AU  - Baghai,Ramin P.
AU  - Subramanian,Krishnamurthy V.
TI  - Wrongful Discharge Laws and Innovation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18516
PY  - 2012
Y2  - November 2012
UR  - http://www.nber.org/papers/w18516
L1  - http://www.nber.org/papers/w18516.pdf
N1  - Author contact info:
Viral V. Acharya
Stern School of Business
New York University
44 West 4th Street, Suite 9-84
New York, NY 10012
Tel: 212/998-0354
Fax: 212 995 4233
E-Mail: vacharya@stern.nyu.edu

Ramin Baghai
Stockholm School of Economics 
E-Mail: ramin.baghai@hhs.se

Krishnamurthy Subramanian
Indian School of Business
Gachibowli
Hyderabad (A.P.)
India 500032
Tel: +91-40-2318-7169
E-Mail: kvsubramania@gmail.com
AB  - We show that wrongful discharge laws – laws that protect employees against unjust dismissal – spur innovation and new firm creation. Wrongful discharge laws, particularly those that prohibit employers from acting in bad faith ex post, limit employers' ability to hold up innovating employees after the innovation is successful. By reducing the possibility of hold-up, these laws enhance employees' innovative efforts and encourage firms to invest in risky, but potentially mould-breaking, projects. We develop a model and provide supporting empirical evidence of this effect using the staggered adoption of wrongful discharge laws across the U.S. states.
ER  -