CHOICE OF DRIVER CONTRACT IN ROAD TRANSPORT

Abstract: An unresolved puzzle in the economics literature is the co-existence of share, fixed-wage, and rental contracts in the organization of similar economic activities. Our analysis of transportation markets in this paper finds that the choice of contract type between owners and drivers of modes of transport depends on risk aversion, the costs of monitoring, access to capital markets, and constraints determined by the level of development and other characteristics of the region and passenger population. Clini-cal examination of the pattern of driver contracts for minibus firms in the Philippines and Hong Kong supports the conclusion that these general factors and other constraints jointly determine the choice of contract that is consistent with an efficient assignment of drivers and passengers to alternative transportation firms. Key Words: contract theory, payment systems, bus driver incentives and behaviour. 1