Make vs. Buy in Trucking: Asset Ownership, Job Design, and Information

Abstract

Explaining patterns of asset ownership in the economy is a central goal of both organizational economics and industrial organization. We develop a model of asset ownership in trucking which combines features of both property rights theory and multi-task principal-agent theory. We test the model by examining how the adoption of different classes of on-board computers (OBCs) between 1987 and 1997 influenced whether shippers use their own trucks for hauls or contract with for-hire carriers. We find that OBCs' incentive-improving features pushed hauls toward private carriage, but their resource-allocation-improving features pushed them toward for-hire carriage. We conclude that ownership patterns in trucking reflect the importance of both incomplete contracts (Grossman and Hart (1986)) and of job design and measurement issues (Holmstrom and Milgrom (1994)).

Keywords: Asset ownership, integration, incentives, coordination, information, trucking

JEL Classification: D23, L14, L22, L92