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How Wide is the Scope of Hold-Up-Based Theories? Contractual Form and Market Thickness in Trucking

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  • Thomas N. Hubbard
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    Abstract

    How far do the contractual implications of hold-up-based theories (Klein, Crawford, and Alchian (1978), Williamson (1979, 1985)) extend? I investigate this in the context of trucking. Quasi-rents in trucking are generally smaller than in the contexts studied in the previous empirical literature. They vary with hauls' distance and the thickness of local markets. 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 -- hauls for which quasi-rents are particularly small. Contracts' role as protectors of quasi-rents becomes less important as quasi-rents decrease, but exists over a surprisingly large range.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7347.

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    Date of creation: Sep 1999
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    Publication status: published as Hubbard, Thomas N. "Contractual Form And Market Thickness In Trucking," Rand Journal of Economics, 2001, v32(2,Sumer), 369-386.
    Handle: RePEc:nbr:nberwo:7347

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    1. Williamson, Oliver E., 1989. "Transaction cost economics," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 3, pages 135-182 Elsevier.
    2. Bagwell, Kyle & Ramey, Garey, 1994. "Coordination Economies, Advertising, and Search Behavior in Retail Markets," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 498-517, June.
    3. Masten, Scott E & Crocker, Keith J, 1985. "Efficient Adaptation in Long-term Contracts: Take-or-Pay Provisions for Natural Gas," American Economic Review, American Economic Association, American Economic Association, vol. 75(5), pages 1083-93, December.
    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(2), pages 156-168, June.
    5. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    6. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
    7. Pirrong, Stephen Craig, 1993. "Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 36(2), pages 937-76, October.
    8. Kirk Monteverde & David J. Teece, 1982. "Supplier Switching Costs and Vertical Integration in the Automobile Industry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(1), pages 206-213, Spring.
    9. Theodore E. Keeler., 1989. "Deregulation and Scale Economies in the U. S. Trucking Industry: An Econometric Extension of the Survivor Principle," Economics Working Papers, University of California at Berkeley 89-100, University of California at Berkeley.
    10. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 168-85, March.
    11. Paul Joskow, 1984. "Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 361, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(1), pages 1-25, Spring.
    13. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 297-326, October.
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    Cited by:
    1. Shah, Nilopa & Brueckner, Jan K., 2012. "Price and frequency competition in freight transportation," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 46(6), pages 938-953.
    2. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(8), pages 1197-1224, October.
    3. Pierre André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series 738, CESifo Group Munich.
    4. Francine Lafontaine & Scott E. Masten, 2002. "Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in U.S. Trucking," NBER Working Papers 8859, National Bureau of Economic Research, Inc.
    5. George P. Baker & Thomas N. Hubbard, 2000. "Contractibility and Asset Ownership: On-Board Computers and Governance in U.S. Trucking," NBER Working Papers 7634, National Bureau of Economic Research, Inc.

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