Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered

Christian Ruzzier

No 09-119, Harvard Business School Working Papers from Harvard Business School

Abstract: A point repeatedly stressed by transaction cost economics is that the more specific the asset, the more likely is vertical integration to be optimal. In spite of the profusion of empirical papers supporting this prediction, recent surveys and casual observation suggest that higher levels of asset specificity need not always lead to vertical integration. The purpose of this paper is to uncover some of the factors driving firms to (sometimes) choose to remain separated, rather than integrate, in the presence of high specificity. Its main economic message is that in a world where outside options matter and investments are multidimensional, high levels of asset specificity can foster nonintegration: a low level of specificity provides the most misdirected incentives when transacting in a market (because the outside option of external trade becomes so tempting), thus making a stronger case for nonintegration when specificity is high.

Keywords: relational contracts; asset specificity; property rights; vertical integration; outsourcing (search for similar items in EconPapers)
JEL-codes: D23 L14 L24 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-04
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.hbs.edu/research/pdf/09-119.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:09-119

Access Statistics for this paper

More papers in Harvard Business School Working Papers from Harvard Business School Contact information at EDIRC.
Bibliographic data for series maintained by HBS ().