Measuring technological change in the U.S. motor carrier industry

This paper re-examines the impact of deregulation and technological change on U.S. motor carrier costs for the period 1976-1987. A truncated, third-order translog cost function, developed by Stevenson (1980) allows us to decompose technological change into three components: input bias, output bias, and characteristics bias. We examine the source of these biases and use the model to test the Schumpeter hypothesis, which asserts that large firms innovate at a faster rate than small firms. We show that technological change has been labor-saving and purchased capital-using, and that these input biases were induced by changes in output level. The increase in the capital cost share and the decrease in fuel cost share are attributed to deregulation. Over time, the LTL sector of the motor carrier industry has become more capital intensive, resulting in even higher entry barriers. The output bias of technological change on the representative firm is not significant and our results do not support the Schumpeter hypothesis in the LTL sector of the motor carrier industry. Technological change has increased the economies of larger shipment size over time, but has not significantly altered the impact of average load, average length of haul, or insurance per ton-mile on costs over time. Also we find that deregulation, through its negative impact on technological change, has resulted in higher industry costs.