What do you mean by asset specificity?

In economics, asset specificity is the degree to which a thing of value, or even a person of value, can be readily adapted for other purposes. A thing with high specificity is useful only for certain tasks or in certain circumstances.

What factors contribute to asset specificity?

Asset specificity is a term related to the inter-party relationships of a transaction….

• The skill level of the employees working on the interfaced carrier’s business.
• The extent of training needed.
• The workflows and routines of the interfaced carrier.

What is site asset specificity?

Asset specificity is defined as the extent to which the investments of one firm are specific to a particular transaction and thus have little or no value in an alternative use.

What is a transaction specific asset?

1. This is the extent to which investments made to support a particular transaction or relationship have a higher value to that transaction or relationship than they would have if deployed for any other purpose.

What are the types of asset specificity?

Williamson describes five other Page 8 different types of asset specificity: site specificity, physical asset specificity, human asset specificity, temporal specificity and brand name capital (Williamson, 1991).

What are the three types of specialized assets?

They come in three types: site specificity, physical-asset specificity, and human-asset specificity.

How is asset specificity measured?

First, the asset-level specificity measure is constructed by dividing the number of industries that do not use a particular capital asset class by the total number of industries.

What is human-asset specificity?

Human-Assed Specificity Human-asset specificity refers to the accumulation of knowledge and expertise that is specific to one trading partner. The design and development of a new automobile model has traditionally been a very complicated and time-intensive process.

What is a good way to overcome the principal agent problem?

To try and overcome the principal-agent problem, the principal will have to spend money on monitoring and providing incentives for workers. “However, it is generally impossible for the principal or the agent at zero cost to ensure that the agent will make optimal decisions from the principal’s viewpoint.”

What is a specialized asset?

Specialized assets are defined as an asset which has features or aspects that makes it useful for one or a few specific purposes only. Example customized customer software suitable to match the needs of a particular organization.

What is the principal-agent problem in economics?

The principal-agent problem is a conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated. The problem can occur in many situations, from the relationship between a client and a lawyer to the relationship between stockholders and a CEO.

What is an example of a principal-agent problem?

Principal Agent Problem Examples A widespread real-life example of the principal agent problem is the way companies are owned and operated. The owners (principal) of a firm will elect a board of directors. The board of directors monitor and guide the management team like C-Level executives (the agents).

How is asset specificity related to economic organization?

The condition of asset specificity is featured. 1. Introduction Transaction cost economics regards the transaction as the basic unit of analysis and holds that the organization of economic activity is largely to be understood in transaction cost economizing terms.

Are there any problems with asset specificity?

Problems with Asset Specificity. Opportunistic pricing can be a potential problem with highly specific assets. If a company relies on a single supplier for one of its parts, that company may try to opportunistically charge the company a very high price for that item.

What are the four dimensions of asset specificity?

Zaheer and Venkatraman (1994) acknowledge four asset specificity dimensions: site, human, physical, and dedicated assets. In addition, they define two dimensions of asset specificity in their study: human asset specificity and the newly developed “procedural asset specificity”, where

What is the definition of Human Asset specificity?

Human asset specificity deals with the degree to which skills, knowledge and experience of the agency’s personnel are specific to the business process.