where we assume λ b 1 to guarantee the concavity of the incumbent's optimization problem with respect to K. Unless otherwise noted,we assume that the complementary assets needed to forma start-up are provided by a third party.We do not make any specific assumption on the sign of the elasticity of the setup costs with respect to the level of knowledge on which the start-up is based. Both negative and positive values of λ can be considered. These set-up costs do not arise if the employee stays in the firm and no new company is formed.
To investigate the bargaining between the start-up's founder and the provider of complementary assets,we denote by x the amount allocated to the employee in the bargaining and we assume for simplicity that all potential alternative providers are identical. Thus, considering that the provider of the complementary assets saves the cost C(K) in case of disagreement, the threat-points of the start-up's founder and of the provider are αx and C(K), respectively. The joint surplus to be allocated is πE s(K). Accordingly, we have that: