Why Misaligned Incentives Make Moving Companies Hard To Choose

by AJ Pettersen · 5 comments

As an Economics major in college I am always thinking like a student. I am always trying to save a little cash when shopping and I am constantly observing how my financial decisions affect others. The world moves when money moves. This simple truth has always been fascinating to me.

I encountered one of these situations the other day while helping my FMIL (future mother in law) move into her new home. She hired a moving company to help with the long, stressful day. This was necessary because of the sheer amount of items she had to move. She called me to come and help her during the day, and I figured I would be moving items or driving around town picking up various things to help the day go more smoothly. I did some of these things, but my main job was to watch the movers. My response was, “Really, I have to watch the movers?” The problem was the company was paid by the hour. If I weren’t there, my FMIL would have had to pay for a few extra hours because she was in the closing process throughout the day and couldn’t be there to open her new home to let them in. She also wanted me to make sure they moved at a brisk pace because their hourly rate was just over $200.

Per Hour or Flat Rate?

If you are going to be using a moving company the first decision you will make is probably between flat rate and hourly rate movers, but should this really be the deciding factor? From an economic standpoint, both of these options present misaligned incentives. The hourly rate movers have the incentive to move slower, thus working more hours and making more money. On the flip side, the flat rate movers have the incentive to move too quickly, thus moving more homes each day and making more money. This means per hour companies are more inclined to charge more and do a better job, while flat rate movers are more inclined to charge less and do a less satisfactory job.

Disclaimer: This is a strictly economic view of moving companies and I know this doesn’t describe every moving company in every situation.

How Do You Choose?

Although I have very little experience with moving companies, the day I spent watching the moving company presented interesting information. I decided that flat rate versus hourly rate was less important than a few of other factors.

I asked a few questions while I watched the movers throughout the day. An important piece of information I found out was how busy they were. They said they typically move two houses a day and work every day of the week. In my opinion, this offset their incentive to move slowly. They were a budding business and they had a greater incentive to work effectively because they have to move on to the next home in a brisk manner.

While the amount of work that an hourly rate company has is important, the offsetting factor for a flat rate mover may be different. If you are looking at flat rate movers, it would be a great idea to check out their reviews closely. If you find they consistently move too fast and leave a lot of sorting up to you, then move on to the next option. Try to find a company that moves in a clean and efficient manner.

When choosing who you want to move you from one home to the next, you should put yourself in their shoes. Given the circumstances (rate, type of company, etc.), would you do a quality job? Understanding how money affects the task at hand is important when hiring anyone to work for you.

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{ 5 comments… read them below or add one }

Icarus February 22, 2012 at 7:13 am

A better way to look at it is to figure out how long it should take to move your stuff from one place to another. Your Mileage May Vary, but I suspect a one bedroom apartment is better off using per hour while a single family home would make better use of a flat fee. As long as you hire a reputable company and have some legal recourse in case of problems, you should be fine.

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AJ Pettersen February 22, 2012 at 11:01 am

That is a very good point, I never thought of it that way. The house noted here was pretty small, so it didn’t take to long to move in. The moving out of the previous home is what took most of the time.

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Jimbob February 23, 2012 at 1:26 pm

One thing that I’ve done in the past with hourly movers is try adjust the incentives in my favor. I’ll tell the leader of the moving team my (reasonable) time expectation for the move, and that I have a nice tip for the crew if they hit the mark. If not, the extra time will eat into their tip. Thankfully, I’ve had good experiences both times I’ve moved.

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AJ Pettersen February 23, 2012 at 4:48 pm

That is brilliant! Put yourself in their shoes and you will understand why they do things the way they do.

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Christian Brink October 27, 2013 at 6:48 am

I think it is a brilliant idea ;). This way, the company will work faster than usual for extra tip and you will get the best quality service too.

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