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Firm Boundaries and Regulation: The Case of Greek Trucking

This paper studies the implications that arise when regulation imposes constraints on firms’ decisions about their boundaries in the context of the Greek trucking sector. I document how a regulatory cap on the number of for-hire vehicles compelled producers to acquire and operate own-account trucks within their firms, leading to a larger, underutilized commercial vehicle fleet relative to the European average. I then specify and estimate a structural dynamic model for firms’ make versus buy choice for product transportation, allowing for taste heterogeneity and transaction costs, and find evidence that the regulation steered firms to own-account carriage. Using the estimated model and data on commercial vehicle movements, I quantify the effects of the regulation through counterfactual. I find that in the absence of the regulation, the total commercial fleet is 23.6% smaller and the average truck utilization improves by 3.05 percentage points. I also find that the regulation led to 5.1% more vehicle-kilometres traveled and removing it brings a reduction in the sector’s carbon dioxide emissions by 5.9%.