By Sharon Morioka
Michigan Law
Although Lorenzo Luisetto conducted much of his previous research in his native Italy, the implications span continents as he carries forth that research in his work as Michigan Law’s Empirical Legal Studies Center Fellow.
Specifically, he is developing data sources and using evidence-based methods to help answer questions about how firms use covenants in business and employment contracts to protect their intellectual property and other interests.
While that might seem like a heady concept meant only for debate among academics, it has real-world implications.
“Lorenzo’s research is important because it will generate insights into how firms actually use these tools in our current legal regime and the conditions under which their use is likely to be welfare-enhancing,” said J.J. Prescott, the Henry King Ransom Professor of Law and co-director with Margo Schlanger of the Empirical Legal Studies Center. “His aim is to inform how we regulate these tools to reduce abuse and anticompetitive losses while enhancing investment and innovation.”
Luisetto, who is also an SJD candidate at Michigan Law, is the latest researcher to work with the Law School’s Empirical Legal Studies Center, which supports research that generates evidence relevant to legal and policy debates. Here, he answers a few of our questions about what he is exploring and why it matters.
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What are one or two studies that you’re currently involved in?
Together with Tito Boeri and Andrea Garnero, I administered a survey in Italy to study the use and the labor market outcomes of noncompete agreements in employment contracts to better understand how they work there and to provide comparative insights for the current US debate.
Another project I’m working on now is on franchising—the focus is on covenants that firms use to protect confidential information and trade secrets. We are using a database of franchise agreements and coding all of them. We want to understand how these covenants are written, how much they are used, and which type of firms use them. The idea is to go beyond litigation or doctrinal discussion to understand how these phenomena actually work in the business world.
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Why is the University of Michigan a good place for this type of research?
It’s the best place to do this kind of research; there are several faculty here at the Law School, like J.J. Prescott, who do this type of research. It’s also a great place because of the interdisciplinary type of work I do. The business school and the economics department are nearby. I have two advisers at the business school, including Professor Francine Lafontaine, with whom I’m working on the franchising project. I think it’s really great to have access to the experience and expertise of other people, which is what matters when you do interdisciplinary work.
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How did you get involved in this kind of work?
I was lucky because Luca Nogler, my PhD adviser in Italy, was very well aware of the interplay between, for example, labor market regulation and the economics behind it. He encouraged me to study the role that antitrust remedies can play in labor markets, mixing the empirical evidence on monopsony and economic theory with legal remedies.
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Monopsony? What’s that?
Monopsony is the mirror image of monopoly. Instead of having one seller, you have only one buyer, either in the product or in the labor market. Traditionally, labor markets were thought to be perfectly competitive, so there was no need to worry about it.
But more recently we have seen more and more empirical evidence regarding labor monopsony, particularly on frictions and other imperfections in the labor market. These frictions, of which noncompete agreements are an example, can be anticompetitive, limit workers’ job opportunities, and have detrimental effects on innovation. When you realize that firms have market power in the labor market and can use it against workers, you also start thinking about what the potential remedies might be.
Right now, there is a huge academic and policy debate around these issues, especially since the Federal Trade Commission proposed banning noncompete clauses in employment contracts at the beginning of January.
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So this type of research can have substantial applications?
Yes, and J.J. Prescott and his co-authors published three articles on this trend. [The Federal Trade Commission relied heavily on Prescott’s co-authored paper “Noncompete Agreements in the US Labor Force” in its January 2023 proposed ban of noncompete clauses.] If you can provide rigorous, quantitative evidence on the right questions, you give regulators and policymakers the ideas and arguments to build effective regulations. And so in this sense, I have the feeling that the research I’m doing could also serve this purpose, have an impact.
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