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

44 Pages Posted: 28 Mar 2002 Last revised: 17 Sep 2022

See all articles by Francine Lafontaine

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Scott E. Masten

University of Michigan, Stephen M. Ross School of Business

Date Written: March 2002

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

Lafontaine, Francine and Masten, Scott E., Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in U.S. Trucking (March 2002). NBER Working Paper No. w8859, Available at SSRN: https://ssrn.com/abstract=305603

Francine Lafontaine (Contact Author)

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

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University of Michigan at Ann Arbor - Department of Economics ( email )

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Scott E. Masten

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
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815-572-8207 (Fax)

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