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Old 11-30-2007, 11:47 AM
skindog skindog is offline
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Default Moral Hazard problem in a small business

I just stumbled on a moral hazard problem at work, and I'm brainstorming for solutions. I hope a few of you have run into similar situations in your professional careers.

First, some background: I own and run a mid-sized (~60 trucks) over the road trucking company in the midwest. ~55 of the trucks are mine (the bank and I own them, and I simply hire drivers), and 6 trucks are owner-operators (OOs - they own the trucks, pay for the fuel, insurance, etc etc.)

It is much more profitable for me to run my own trucks than the owner operators'. I get whatever I squeeze out of the load with my trucks, but I only get 10% of the gross of the OO's loads, no matter what.

This is where the problem comes exists: dispatchers have an incentive to give more profitable loads to OO, but I have an incentive to give my trucks the more profitable loads. Dispatch talks to OO all the time, and it is not uncommon in the industry for an OO to cough up cash on the side to the dispatcher in order to get better loads. Example: The OO pays $50 to the dispatcher, the dispatcher gives him a load that pays $300 more, and everybody's happy except the owner (me) who is out the extra profit.

I plan on picking up more owner-operators, but am worried about this corruption. I've heard of other companies that have the entire fleet of owner operators paying dispatchers for better loads. Right now I just watch the loads going out and make sure everything's gravy - but I'm trying to build this company so it can run profitably without me.

I've been trying to think of control or incentive systems that can make this scheme seem unprofitable to drivers or dispatchers. I haven't been able to come up with much - either hire a trustworthy manager, give up the hassle free easy cash that comes from having owner operators, or let the corruption run amok. None of these options leave me with much comfort.

I would appreciate any insights you guys might have. I'm not very good at explaining things, so if I didn't make something clear, feel free to ask.
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