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

C. Kirabo Jackson () and Henry Schneider

No 16279, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study investigates the role of social networks in aligning the incentives of economic agents in settings with incomplete contracts. We study the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers as a result of a moral hazard associated with incomplete leasing contracts. Using instrumental variables and fixed-effects analyses, we find that: (1) drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard; (2) network effects appear to operate primarily via social sanctions; and (3) network benefits can help to explain the organization of the industry in terms of which drivers and owners form business relationships.

JEL-codes: D52 D62 D64 D82 J01 J41 (search for similar items in EconPapers)
Date: 2010-08
Note: LE LS PE
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Published as Jackson, C. Kirabo, and Henry S. Schneider. 2011. “Do Social Connections Reduce Moral Hazard? Evidence from New York City Taxi Industry.” American Economic Journal: Applied Economics. 3 (July): 244­267

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