Assignment 2.
In its most basic form, the theory of asset specificity predicts that internal organization is most likely to supersede independent ownership and market transaction to the extent that the assets involved are highly specific to the transaction. Asset specificity is measured by the liquidity or fungibility of the assets: highly specific assets lose much of their value outside of the transaction, whereas non-specific assets are easily sold on liquid markets for most of their original value.
Consider now the business of long-haul trucking. Trucks would seem clearly to be nonspecific assets: they are generic with respect to particular hauls, and there is a thick market for used trucks. This we would expect that most trucks would be operator owned and truckers would be independent contractors using the market rather than employees of trucking firms. Surprisingly, perhaps, it turns out that two-thirds of long-haul truckers are in fact employees not owner operators. Jack Nickerson and Brian Silverman have attempted to reconcile this finding with asset specificity theory. You assignment is to judge whether they are successful. How exactly do they attempt to reconcile asset-specificity theory with the facts of long-haul trucking? Are they successful? What does the case of trucking say about the theory of asset specificity?
- Nickerson, Jackson A. and Brian S. Silverman. 2003. "Why Aren't All Truck Drivers Owner-Operators? Asset Ownership and the Employment Relation in Interstate for-Hire Trucking," Journal of Economics & Management Strategy 12(1): 91-118.
In addition to the Nickerson and Silverman paper, you should look at the readings in the asset-specificity section of the syllabus. You may also find the following useful:
- George P. Baker and Thomas N. Hubbard, "Contractibility and Asset Ownership: On-board Computers and Governance in U.S. Trucking," Quarterly Journal of Economics 119(4): 1443-1479 (2004).
- Francine Lafontaine and Scott E. Masten, "Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in U.S. Trucking," NBER Working Paper No. w8859, 2002.