Firm Boundaries and Regulation: The Case of Greek Trucking

Abstract

This paper studies the implications that arise when regulation imposes constraints on firms’ decisions about their boundaries in the context of the Greek trucking sector. I document how a regulatory cap on the number of for-hire vehicles compelled producers to acquire and operate own-account trucks within their firms, leading to a larger, underutilized commercial vehicle fleet relative to the European average. I then specify and estimate a structural dynamic model for firms’ make versus buy choice for product transportation, allowing for taste heterogeneity and transaction costs, and find evidence that the regulation steered firms to own-account carriage. Using the estimated model and data on commercial vehicle movements, I quantify the effects of the regulation through counterfactual. I find that in the absence of the regulation, the total commercial fleet is 23.6% smaller and the average truck utilization improves by 3.05 percentage points. I also find that the regulation led to 5.1% more vehicle-kilometres traveled and removing it brings a reduction in the sector’s carbon dioxide emissions by 5.9%.