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Transaction‐cost and agency theorists have frequently cited trucks as prototypical user‐owned 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 US 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. In the absence of externalities across hauls, contracting between carriers and owner‐operators is preferred for traditional agency reasons. However, when the outcome of one haul imposes externalities on other hauls or on the carrier's reputation, an owner‐operator will not internalize all costs associated with poor outcomes. Given problems of noncontractibility of maintenance effort, carrier ownership of the vehicle is the preferred organizational form in such a case. We also propose that vehicle idiosyncrasy can create thin market conditions that encourage carrier ownership of vehicles. A study of the organization and operations of 354 trucking firms for 1991 provides evidence consistent with these predictions.
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