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Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in U.S. Trucking

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Author Info
Francine Lafontaine
Scott E. Masten

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Abstract

This paper considers functions of contracting other than the protection of relationship-specific investments and the provision of marginal incentives, and applies the theory to explain variation in the form of compensation of over-the-road truck drivers in the U.S. Specifically, we argue that contracts in this industry serve to economize on the costs of price determination for heterogeneous transactions. We show that the actual terms of those contracts vary systematically with the nature of hauls in a way that is consistent with the theory. By contrast, we find that vehicle ownership, which defines a driver's status as an owner operator or company driver, depends on driver, but not trailer or haul, characteristics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8859.

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Date of creation: Mar 2002
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Handle: RePEc:nbr:nberwo:8859

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Find related papers by JEL classification:
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
D2 - Microeconomics - - Production and Organizations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Canice Prendergast, 2000. "The Tenuous Tradeoff Between Risk and Incentives," NBER Working Papers 7815, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Oxford University Press, vol. 34(3), pages 444-63, July.
  3. Francine Lafontaine & Margaret E. Slade, 1998. "Incentive Contracting and the Franchise Decision," NBER Working Papers 6544, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer. [Downloadable!] (restricted)
    Other versions:
  5. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June. [Downloadable!] (restricted)
  6. Kenney, Roy W & Klein, Benjamin, 1983. "The Economics of Block Booking," Journal of Law & Economics, University of Chicago Press, vol. 26(3), pages 497-540, October.
  7. Pittman, Russell, 1992. "Specific Investments, Contracts, and Opportunism: The Evolution of Railroad Sidetrack Agreements," Journal of Law & Economics, University of Chicago Press, vol. 34(2), pages 565-89, October.
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  8. Paul Oyer, 2000. "Why Do Firms Use Incentives that Have No Incentive Effects?," Econometric Society World Congress 2000 Contributed Papers 1440, Econometric Society. [Downloadable!]
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  9. Klein, Benjamin, 1988. "Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 199-213, Spring.
  10. Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 1-25, Spring.
  11. Thomas N. Hubbard, 1999. "How Wide is the Scope of Hold-Up-Based Theories? Contractual Form and Market Thickness in Trucking," NBER Working Papers 7347, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Lafontaine, Francine & Bhattacharyya, Sugato, 1995. "The role of risk in franchising," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 39-74, October. [Downloadable!] (restricted)
  13. Hubbard, Thomas N, 2001. "Contractual Form and Market Thickness in Trucking," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 369-86, Summer.
  14. Pirrong, Stephen Craig, 1993. "Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation," Journal of Law & Economics, University of Chicago Press, vol. 36(2), pages 937-76, October.
  15. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-85, March. [Downloadable!] (restricted)
  16. Jack A. Nickerson & Brian S. Silverman, 2003. "Why aren't all Truck Drivers Owner-Operators? Asset Ownership and the Employment Relation in Interstate for-hire Trucking," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 12(1), pages 91-118, 03. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jan Vang, 2003. "Organization of the News Industry, The Case of 'Making-or-Buying' Article s," DRUID Working Papers 03-13, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
  2. Scott E. Masten, 2002. "Modern Evidence on the Firm," American Economic Review, American Economic Association, vol. 92(2), pages 428-432, May. [Downloadable!]
  3. Benito Arruñada & Manuel González & Alberto Fernández, 2004. "Determinants of Organizational Form: Transaction Costs and Institutions in the European Trucking Industry," Economics Working Papers 767, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  4. Marcos Singer & Patricio Donoso & Sven Widdel, 2007. "¿Premian Las Tarifas El Desempeño Del Transportista?," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 10(1), pages 21-55. [Downloadable!]
  5. Wernerfelt, Birger, 2003. "Governance of Adjustments," Working papers 4412-03, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  6. Martinez, Steve W. & Zering, Kelly, 2004. "Pork Quality And The Role Of Market Organizaton," Agricultural Economics Reports 33973, United States Department of Agriculture, Economic Research Service. [Downloadable!]
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