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Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry

C. Kirabo Jackson () and Henry Schneider

American Economic Journal: Applied Economics, 2011, vol. 3, issue 3, 244-67

Abstract: This study investigates the role of social networks in aligning the incentives of agents in settings with incomplete contracts. Specifically, the study examines the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers due to moral hazard. Using within-driver variation and instrumental variable strategies to remove selection, we find that drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard, representing an improvement of almost one-half of a standard deviation of the outcome measures. Screening is ruled out as an explanation, and other mechanisms are investigated. (JEL D82, D86, L92, Z13)

JEL-codes: D82 D86 L92 Z13 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/app.3.3.244
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American Economic Journal: Applied Economics is currently edited by Alexandre Mas

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Handle: RePEc:aea:aejapp:v:3:y:2011:i:3:p:244-67