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Contractual Form and Market Thickness in Trucking

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  • Hubbard, Thomas N
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    Abstract

    A central proposition of the transaction costs literature is that firms will substitute more complicated contractual arrangements for simple spot arrangements when transactions involve relationship-specific investments. I investigate this proposition by testing whether simple spot arrangements are less common when local trucking markets are thin. I find that doubling the thickness of the market increases the likelihood that simple spot arrangements govern transactions by about 30% for long hauls. I find weaker evidence of relationships between local market thickness and contractual form for short-hauls for which quasi-rents are particularly small. Contracts protect quasi-rents over a surprisingly large range, but they play a less important role as quasi-rents decrease. Copyright 2001 by the RAND Corporation.

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    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 32 (2001)
    Issue (Month): 2 (Summer)
    Pages: 369-86

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    Handle: RePEc:rje:randje:v:32:y:2001:i:2:p:369-86

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