Moral Hazard in Leasing Contracts: Evidence from the New York City Taxi Industry
In this study, I investigate the effects of moral hazard in leasing contracts by examining the driving outcomes of all long-term lessees and owner-operators of New York City taxis. I find that moral hazard explains a sizable fraction of lessees' accidents, driving violations, and vehicle inspection failures. To address the possibility of endogenous contract choice, I conduct an instrumental variables analysis of the cross section of all drivers and a panel-data analysis of a subset of drivers who switched from leasing to owning.
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