Do social connections reduce moral hazard? Evidence from the New York City taxi industry

Clement Kirabo Jackson*, Henry S. Schneider

*Corresponding author for this work

Research output: Contribution to journalArticle

24 Citations (Scopus)

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.

Original languageEnglish (US)
Pages (from-to)244-267
Number of pages24
JournalAmerican Economic Journal: Applied Economics
Volume3
Issue number3
DOIs
StatePublished - Jul 1 2011

Fingerprint

Moral hazard
Industry
Social networks
Instrumental variables
Screening
Leasing
Incentives
Incomplete contracts
Owners
Standard deviation

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

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Do social connections reduce moral hazard? Evidence from the New York City taxi industry. / Jackson, Clement Kirabo; Schneider, Henry S.

In: American Economic Journal: Applied Economics, Vol. 3, No. 3, 01.07.2011, p. 244-267.

Research output: Contribution to journalArticle

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