An endogenous switching model of the effect of property broker authority on motor carrier transportation capacity

One area of substantial deregulation of the U.S. motor carrier industry by the Motor Carrier Act of 1980 is entry policy. As a result of the relaxed entry conditions, there has been an increase in the number of motor carriers which are Interstate Commerce Commission licensed property brokers. In effect, property broker authority allows motor carriers to use other motor carriers' transportation capacity in order to service their own customers. Since one of the goals of regulatory reform was to promote more efficient utilization of resources, it is important to know if allowing motor carriers to possess property broker authority has helped in achieving this goal.;A priori, the effect of property broker authority on motor carrier investment in transportation capacity is ambiguous. Motor carriers operate in markets characterized by uncertain demand for their transportation service. The opportunity to sell unused transportation capacity to property brokers may provide motor carriers with an incentive to increase their capacity investment. However, property broker authority allows motor carriers to substitute brokered transportation service for transportation capacity. Thus broker authority may result in motor carriers decreasing their investment in transportation capacity.;An endogenous switching model of motor carrier performance concerning transportation capacity investment is estimated for a choice-based sample of motor carriers with and without property broker authority. Since the choice to acquire broker authority is endogenous, the econometric model explicitly accounts for self-selection by motor carriers regarding broker status. The estimation results indicate that general freight carriers are more likely than specialized commodity carriers to possess broker authority, and that the effect of property broker authority is to decrease motor carrier investment in transportation capacity. In addition, among motor carriers with property broker authority, general freight carriers tend to have less transportation capacity than specialized commodity carriers.