Econ 174
Spring 1998
Thomas Hubbard
Problem Set 3 -- Due May 29, 1998

1.     Define quasi-rent.  Describe a situation where quasi-rents are exist, but not appropriable.  In such a situation, does the existence of quasi-rents provide an motivation for vertical integration?  Explain.

2.     In class I briefly mentioned that Alchian and Demsetz' analysis sheds some light on organizational issues faced by retail chains.

3.     Using efficiency wage theory, explain why the salary of a 60-year old executives might be higher than the salary of 45-year-old executives who are equally talented and knowledgeable and whose outside opportunities are exactly the same.

Does efficiency wage theory provide a coherent explanation for why compensation generally increases with age for salaried workers?  Why or why not?

4.     Firms use various types of trailers when hauling goods by truck.  Two examples are "basic vans" and "grain bodies."  Basic vans are used to haul general freight: goods which are packaged in boxes and which are not temperature-sensitive.  (These are the familiar box-like trailers you see on the road.)  Grain bodies are trailers which have no top, but have sides which are reinforced by layers of steel that can withstand large amounts of pressure from inside.

 Hubbard (1998) finds that nationwide, about 35% of hauls which use basic vans are completed by private fleets -- circumstances where manufacturers, distributors, retailers, etc., hauls their own goods.  The rest are completed by for-hire trucking firms.  In contrast, 75% of hauls which use grain bodies are completed by private fleets; only 25% are completed by for-hire fleets. Further research indicates that 55% of hauls which use grain bodies in Iowa are completed by for-hire trucking firms, but 5% of hauls which use grain bodies in Oregon do.