MIS 9003 – Prof. Min-Seok Pang

Week 2- Reading Summary- Leting Zhang

Baker, G. P., & Hubbard, T. N. (2004). Contractibility and asset ownership: On-board computers and governance in US trucking. The Quarterly Journal of Economics119(4), 1443-1479.

How informational capabilities affect the boundaries of the firm, specifically, the ownership of assets? In the context of U.S. trucking, the paper investigates the impact of OBD(On-board computers) adoption on two kinds of ownership by changing the contracting environment.

The analytic framework  is based on property rights theories, it expalains how contractual incompleteness can affect the comparative advantage of using an owner-operator for a haul relative to a company driver.   There are two main costs two ownerships face,  company driver has higher agency costs compared to owner driver who faces a higher bargain costs.  Agency costs are from the seperation between residual right and residual claimant.  Bargain costs are from the inefficiencies associated with bargaining over the truck’s use. However the OBD could reduce the agency costs.  Based on the framework, the paper proposes that (1). longer hauls are more likely to be completed by owner-operators; (2) unidirectional hauls are more likely to be carried by owner-operator; (3) driver-ownership should decline with OBC adoption; (4) the relationships between OBC adoption and ownership should be stronger for long hauls than for short hauls.

In the analysis part, the paper uses Truck Inventory and Use Surveys from 1987 and 1992. Firstly it examines cross-sectional relationships and test the first two hypotheses, then it constructs cohorts and take several approaches including first difference estimation, instrumental variables to solve the endogeneity and test the main hypotheses.

The results suggests that improved contracting, using on-board computers in the context, leads to more integrated asset ownership. In another word, the changes in monitoring technology could change the industry structure in this sector. The implications could also be applied to other sector, like medicine.

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