Week3_Ada

Contractibility and Asset Ownership: On-Board Computers and Governance in U.S. Trucking

Key concepts:

On-board computers (OBCs) appeared on the market during the mid-to-late 1980s.There are two classes of OBCs: trip recorders and electronic vehicle management systems (EVMS). Both classes of OBCs provide carriers better measures of how drivers operate trucks.

Incentives for driver ownership of trucks: scope for good driving and scope for rent-seeking[1]

Incentives for carrier ownership of trucks: bargaining power

Research questions:

This paper examines relationships between trucks ownership and the contracting environment, when an important new technology became available that fundamentally changed contractibility in the industry.

Main findings:

Driver ownership of trucks has declined with increases in the contractibility of drivers’ actions. Specifically, 1) driver ownership of trucks decreases with OBC adoption; 2) driver ownership decreases with OBC adoption more for longer than shorter hauls; 3) driver ownership decreases with OBC adoption less for hauls that use trailers for which demands tend to be unidirectional than bidirectional.

Contributions:

Exploration of relationships between OBC adoption and ownership changes constitutes the main empirical contribution of the paper. The analysis in this paper may explain relationships between contractibility and firms’ boundaries in other contexts, especially those in which the care of valuable assets is important. The results in this paper suggest that changes in monitoring technology could change the industry structure in this sector. Such changes could similarly affect the professions.

[1] Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity. The classic example of rent-seeking, according to Robert Shiller, is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee (or rent of the section of the river for a few minutes) to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is helping nobody in any way, directly or indirectly, except himself. All he is doing is finding a way to make money from something that used to be free.