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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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  • Francine Lafontaine
  • Scott E. Masten

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.

Suggested Citation

  • 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.
    • Handle: RePEc:nbr:nberwo:8859
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    References listed on IDEAS

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    Cited by:

    1. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    2. Singer, Marcos & Donoso, Patricio, 2011. "Contracting contractors," Journal of Business Research, Elsevier, vol. 64(3), pages 338-343, March.
    3. Haili Zhang & Michael Song & Xiaoming Yang & Ping Li, 2019. "What are Important Technologies for Sustainable Development in the Trucking Industries of Emerging Markets? Differences between Organizational and Individual Buyers," Sustainability, MDPI, vol. 12(1), pages 1-23, December.
    4. Jean-Michel Oudot & Claude Ménard, 2010. "Opportunisme ou équité ? Le cas des contrats d’approvisionnement de défense," Revue Française d'Économie, Programme National Persée, vol. 24(3), pages 195-226.
    5. Benito Arruñada & Manuel González-Díaz & Alberto Fernández, 2004. "Determinants of organizational form: transaction costs and institutions in the European trucking industry," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 13(6), pages 867-882, December.
    6. Giorgio Zanarone & Desmond (Ho-Fu) Lo & Tammy L. Madsen, 2016. "The double-edged effect of knowledge acquisition: How contracts safeguard pre-existing resources," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2104-2120, October.
    7. 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.
    8. Baker, George P. & Gibbons, Robert & Murphy, Kevin J., 2008. "Strategic alliances: Bridges between "islands of conscious power"," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 146-163, June.
    9. Wernerfelt, Birger, 2003. "Governance of Adjustments," Working papers 4412-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Jason Miller & Keith Skowronski & John Saldanha, 2022. "Asset ownership & incentives to undertake non‐contractible actions: The case of trucking," Journal of Supply Chain Management, Institute for Supply Management, vol. 58(1), pages 65-91, January.
    11. 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.
    12. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    13. Martinez, Stephen W. & Zering, Kelly D., 2004. "Pork Quality And The Role Of Market Organizaton," Agricultural Economic Reports 33973, United States Department of Agriculture, Economic Research Service.
    14. Scott E. Masten, 2002. "Modern Evidence on the Firm," American Economic Review, American Economic Association, vol. 92(2), pages 428-432, May.

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    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D2 - Microeconomics - - Production and Organizations

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