Management Accounting Section Midyear Meeting

Asset Control Rights and the Independent Contractor

• In Event: Contracting

Abstract

Independent contractors are a growing share of today’s workforce. These workers frequently own assets central to production, which provides independent contractors with significant autonomy and high-powered incentives but also exposes their exchange partners to opportunistic behavior. Regulatory or contractual restriction of independent contractors’ asset control rights mitigates opportunism but may have unintended consequences for the quantity and quality of labor supplied. We exploit a legacy provision in regulation of the trucking industry to examine the effect of asset control right restrictions imposed by federal mandate on independent contractors. This 2015 regulatory change mandates the use of electronic logging devices that enforce hours-of-service (HOS) limits. Our difference-in-differences estimates reveal a 16% decrease in major HOS violations after the mandate, reflecting improved compliance. However, we also find that the mandate had an adverse impact on contracting labor supplied: the likelihood of market exit increased 23.4%, labor supplied per contractor decreased 6%, and long-term subcontracting increased 4%. Additional analysis examining heterogeneity in treatment effects reveals that while violators drove observed improved compliance, adverse effects on market exits extend to non-violators, potentially creating supply-side distortions in the labor market. Our findings have implications for contracting and regulation governing transactions involving independent contractors.

Authors

• Martin K. Holzhacker, Michigan State University

• Harlow Loch, Michigan State University

• Jason Miller, Michigan State University

• Alex Scott, University of Tennessee