Contractual Relationships in the Deregulated Transportation Marketplace

Abstract

W HAT questions would we want answered from an economic theory that sought to explain how a modern, industrialized society organizes production? Such a theory would begin by asking what social institutions have evolved to foster exchange, cooperation, and dispute resolution among economic agents. Such a theory would explain how production is organized between public enterprises and private, profit-seeking firms. Such a theory would explain how similar and complementary activities are organized among firms within industries. And such a theory would explain what control mechanisms have been adopted by firms and other organizations to discourage shirking and other forms of opportunism and to facilitate improved decision making in a world characterized by uncertainty.1 Despite this intimidating research agenda, economists and organization theorists have made impressive strides in developing a theory of economic organization. Important insights have been gained through a better understanding of the nature and efficiency implications of alternative governance structures and property rights, the role of different control mechanisms for mitigating the principal-agent problem, the nature of costs in multiproduct firms, the contractual nature of the firm, and how imperfect and asymmetric information can affect competitive behavior. This re-