EXPENSE PREFERENCE BEHAVIOR IN TRANSPORTATION AFTER DEREGULATION: MICRO-DATA EVIDENCE FROM CEO COMPENSATION SCHEMES

This study employs a large micro-data set to present evidence which suggests that owners of airline and railroad firms have significant incentives in the post-deregulation era to structure CEO compensation packages in an effort to curb potential expense preference behavior. Because such behavior would now (post 1978) occur at a tremendous cost to the owners, fixed-effects regressions confirm the expectation that compensation schemes will consist mainly of bonus incentives and stock options relative to salary, ceteris paribus. Meta-analysis also establishes a link between: (1) a firm's effort to curb expense preference behavior, (2) percentage growth of the firm's net income, and (3) the quality-of-service provided to the ultimate consumer by the firm. In sum, this work supports and supplements the seminal work on the theory of the firm by Coase (1937), as well as subsequent empirical studies.