Why Aren’t All Truck Drivers Owner-Operators? Asset Ownership and the Employment Relation in Interstate For-Hire Trucking

Transaction cost and agency theorists have frequently cited trucks as prototypical userowned assets, and have consequently predicted a predominance of self-employed drivers who contract with motor carriers. In fact, owner-operators accounted for less than one-third of trucking activity conducted by large interstate trucking firms in 1991, a proportion that has changed little since deregulation. Given the predictions of organizational economists, why is self-employment in the interstate trucking industry not the dominant organization form? We propose that transaction costs and agency costs are indeed important in the trucking industry, but those that influence the employment mode for drivers are somewhat different than those that have received attention in prior work. Drawing on parallels to a franchiser’s choice between franchised and company-owned outlets, we explore the tradeoffs that a carrier faces in choosing between owner-operator and company drivers: similar to franchisees, owner-operators offer higher incentive intensity but also increased risks of quality shading and haggling over quasirents. We identify characteristics of trucking that can create conditions of asset-specificity not typically found in franchising. We also note how two unique features of trucking – mobility of the asset and contracts that are terminable at will – elicit additional hazards that affect a carrier’s driver mode choice. A study of the organization and operations of 414 trucking firms for the year 1991 provides evidence consistent with the presence of agency and transaction cost considerations in carriers’ employment mode choices.