Specificity of resources and its types - Institutional economics

Resource specificity and its types

One of the most important characteristics of the transaction is the nature of the investments that the participants in the transaction are making. When you buy bread from a baker, neither side carries out investments to implement only this very definite transaction. The baker puts up money in the bakery equipment, however, he supplies bread not only to you, but a large number of buyers, and if you refuse to buy bread from him, your decision will not affect the value of investment in the bakery equipment. However, if you stamp parts for a particular brand of car as part of a contract with a major car company, your investment in this unique punching equipment will be depreciated if that company declares the deal to be closed. These investments are called specific because they lose most of their value outside of this particular transaction. If you use this equipment for other purposes, most of its value will be lost.

For the first time the concept of resource specificity was introduced into economic theory by the American economist, the 1992 Nobel Prize winner G. Becker in 1964 with respect to investments in human capital. Becker drew attention to the fact that some knowledge and skills have a higher value in these hiring relationships compared to other hiring relationships. These specialized knowledge and skills can contribute to productivity growth, but they introduce difficulties in simple wage models, investment in training, and other terms of employment relationships.

If a resource is of interest to many manufacturers, and its market value does not much depend on where it is used, it is a general-purpose resource. A specific resource is a resource that, in case of an interruption in a transaction, can not be used in other projects without sacrificing its economic value. The measure of resource specificity can be judged by how much the value of the resource is reduced when it is used elsewhere. In itself, the value of investment itself does not play a role: assets with a value of $ 10 million and $ 100 million can be specific, only that their value in this transaction is higher than beyond.

Several types of resource specificity are described in the literature. The first four types of specificity were identified by Williamson. Later he added to them one more kind of specificity (in our list he is the sixth).

1. Location specificity ( site specificity) is associated with too great a cost of moving the resource. It is possible to assume the presence of specific location if the enterprises are geographically close to each other, for example, the power plant is built in the immediate geographical proximity of the coal mine. Such an arrangement allows to save on transport costs and costs associated with the storage of coal reserves. After the initial allocation of assets, the parties will maintain bilateral relations throughout the life of the power plant. Steelmaking and rolling mills are also built in close proximity to each other. Here, savings are achieved by not having to heat steel.

2. Specificity of physical assets ( physical asset specificity). The specificity of physical capital is said when the parties or one of the parties has invested in equipment with certain characteristics that is of less value when used in other projects. An example is the furnace power plants, which are usually designed for a certain type of coal (with a certain moisture content, sulfur, chemical composition). Deviation from the type of coal for which this equipment is designed, due to a break in the relationship with its supplier, will require complex work on the readjustment of the furnace, which is associated with significant resource costs.

3. Specificity of human capital ( human asset specificity). The specificity of human capital is said when, as a result of training in the workplace, workers accumulate special skills that allow them to produce goods and services more efficiently than workers who do not have specific human capital. An example of specific human capital can serve as a manager's knowledge of the administrative features and management culture of the firm in which he worked for many years. These specific knowledge are valuable only for a given firm and depreciate if the manager loses work in this firm, for example, as a result of a hostile takeover of the company he manages. The concept of the specificity of human capital can also relate to the relative skills that arise when the team works, when all team members know each other well.

4. Specificity of target or targeted assets ( dedicated assets specificity). Here it is an investment in general-purpose resources, which, however, may be intended for a single user. The supplier carries out these investments in the hope of selling a significant amount of products to a certain buyer. If the contract is terminated, the supplier has significant reserves, as there is no demand for them from other buyers. The same situation can occur on the buyer's side if he ordered a large number of products and did not receive it - he will not be able to find the same quantity of product on the market.

5. Specificity is temporary ( temporal specificity ). This is a characteristic of investments for which coordination of production is essential. This type of specificity was first considered by the American economist, prominent representative of the neoinstitutional theory of S. Masten and his co-authors in analyzing the costs of organization of naval shipbuilding in order to emphasize the central role of time and coordination in this kind of activity. They drew attention to the fact that all participants in the production process in shipbuilding carried out activities in strict time frames, determined by the need to coordinate actions at successive stages of production. Close coordination required the conclusion of complex contracts and increased the costs of their conclusion. When timely execution is critical, delay becomes a potentially effective strategy in order to extort price concessions. Knowing that the delay at one stage may affect the entire project, the opportunistic supplier may be tempted to gain a larger share of the benefit from the exchange, threatening to suspend execution at the last minute. The skills and assets required to complete the assignment can be quite simple, but the difficulty of finding and reaching an agreement with another supplier that could provide a replacement in the shortest possible time creates the danger of extortion. "

6. Specificity of reputation, torso mark ( brand name specificity). These are irrecoverable investments in creating a reputation or a trademark that will lose their value if the goods or services of the firm are of poor quality.

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