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This study investigates the role of social networks in aligning the incentives of economic agents in settings with incomplete contracts. We study the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers as a result of a moral hazard associated with incomplete leasing contracts. Using instrumental variables and fixed-effects analyses, we find that: (1) drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard; (2) network effects appear to operate primarily via social sanctions; and (3) network benefits can help to explain the organization of the industry in terms of which drivers and owners form business relationships.
The different versions of the original document can be found in:
DOIS: 10.1257/app.3.3.244 10.3386/w16279
Published on 01/01/2011
Volume 2011, 2011
DOI: 10.1257/app.3.3.244
Licence: CC BY-NC-SA license
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