The mechanisms by which innovative technologies come about and make their way into the economy have been the object of a large literature, arguing that the flows of knowledge embodied in employees often facilitate technological diffusion. A particular instance of key employee's mobility is the creation of start-up firms. The available empirical evidence shows that the evolution of many industries is to a large extent driven by the entry of start-ups created by former employees of incumbents (see e.g. Dahletal., 2010, Klepper and Sleeper, 2005, Klepper,
2010, Acs and Plummer, 2005). However, as pointed out by Klepper (2001, p. 639) start-ups are sometimes seen as “parasites feeding off the innovative efforts of their parents, aided by ‘vulture’ capitalists that help them get started”, alluding to the possibility of key employees leaving their employment to start their own firm in the same industry. Arguably, the threat of the establishment of a start-up can have a distorting effect on the incentives of incumbents to innovate.