BORA CMI: The economic organisation of specific assets

Please use this identifier to cite or link to this item: http://hdl.handle.net/10202/244

Title:	The economic organisation of specific assets
Authors:	Kvaløy, Ola
Keywords:	Petroleum sector Relation-specific assets JEL: L7, L2
Issue Date:	2000
Publisher:	Chr. Michelsen Institute
Series/Report no.:	CMI Working paper WP 2000: 14
Abstract:	In the international offshore industry we find that the oil companies and their main suppliers usually operate with separate ownership. But the main contractors manage a capital stock, and produce inputs, that are highly specific to the oil companies. Within the traditional theory of the firm this organizational solution emerges as a puzzle. Asset specificity is usually considered as an argument for vertical integration. The idea is that integration reduces the problem of opportunistic behaviour. In this article I show that asset specificity actually can be an argument for separate ownership. While an integrated supplier considers the asset specificity as unimportant for his strategic behaviour, disintegrated parties find that a high degree of specificity makes opportunistic behaviour less profitable than if the assets enjoyed a low degree of specificity. Asset specificity can thus function as a buffer against opportunistic behaviour. This buffer can create room for strong incentive schemes.
URI:	http://hdl.handle.net/10202/244
ISBN:	82-90584-71-7
ISSN:	0804-3639
Appears in Collections:	CMI Collection (Reports, Working Papers, Articles etc.)

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