Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry
AbstractThis study investigates the role of social networks in aligning the incentives of agents in settings with incomplete contracts. Specifically, the study examines the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers due to moral hazard. Using within-driver variation and instrumental variable strategies to remove selection, we find that drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard, representing an improvement of almost one-half of a standard deviation of the outcome measures. Screening is ruled out as an explanation, and other mechanisms are investigated. (JEL D82, D86, L92, Z13)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Journal: Applied Economics.
Volume (Year): 3 (2011)
Issue (Month): 3 (July)
Other versions of this item:
- C. Kirabo Jackson & Henry S. Schneider, 2010. "Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry," NBER Working Papers 16279, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
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