Contractual Form and Market Thickness in Trucking

Thomas N Hubbard

RAND Journal of Economics, 2001, vol. 32, issue 2, 369-86

Abstract: A central proposition of the transaction costs literature is that firms will substitute more complicated contractual arrangements for simple spot arrangements when transactions involve relationship-specific investments. I investigate this proposition by testing whether simple spot arrangements are less common when local trucking markets are thin. I find that doubling the thickness of the market increases the likelihood that simple spot arrangements govern transactions by about 30% for long hauls. I find weaker evidence of relationships between local market thickness and contractual form for short-hauls for which quasi-rents are particularly small. Contracts protect quasi-rents over a surprisingly large range, but they play a less important role as quasi-rents decrease. Copyright 2001 by the RAND Corporation.

Date: 2001
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