Structuring residual income and decision rights under internal governance: results from the Hungarian trucking industry

The paper offers a property rights and monitoring cost explanation for the allocation of residual income and decision rights between the carriers and truck drivers under internal governance. First, by applying the property rights theory, we argue that the structure of residual income rights depends on the importance of noncontractible (intangible) assets of the truck driver to generate residual surplus. The more important the truck driver's intangible knowledge assets, the more residual income rights should be transferred to him. Second, we controlled for the monitoring costs as an additional explanatory variable of the allocation of residual income rights. According to agency theory, the variable proportion of the driver's income should be higher where monitoring costs are higher. Third, we investigate the relationship between residual income and residual decision rights under internal governance. If the contractual relation is governed by an employment contract, residual decision and residual income rights may be substitutes because, under fiat, a certain incentive effect of the governance structure may result either from the allocation of high-powered incentives or the transfer of residual decision rights to the driver. These hypotheses were tested by using data from the Hungarian trucking industry. The data provide partial support for the hypotheses. Copyright © 2005 John Wiley & Sons, Ltd.