Asset-specific exchanges create resource dependency
between involved parties because specific assets lead
to post-contractual problems when the party with
monopolistic power behaves opportunistically. For
example, if the defense ministry decides not to purchase
a specially developed weapon, then the seller ends up
scrapping the weapon as they cannot sell the product
easily to others (Williamson, 1985). In addition, the seller
also has the monopsony power over the buyer. Assetspecificity
problem also concerns intangible assets
including human assets. As in the case of the public sector
where the rules and procedures governing operations
are categorically different from those of the private sector,
this requires human and other intangible asset
investments by private organizations. In particular, the
public and private interaction requires a high level of
human asset specificity and in turn would require a governance
structure that enhances cooperation and tacit
collaboration among those involved parties. This also
implies that cooperation among private and public organizations
is necessary to reduce transaction costs, for
they must work to earn trust from each other.
Asset-specific exchanges create resource dependencybetween involved parties because specific assets leadto post-contractual problems when the party withmonopolistic power behaves opportunistically. Forexample, if the defense ministry decides not to purchasea specially developed weapon, then the seller ends upscrapping the weapon as they cannot sell the producteasily to others (Williamson, 1985). In addition, the selleralso has the monopsony power over the buyer. Assetspecificityproblem also concerns intangible assetsincluding human assets. As in the case of the public sectorwhere the rules and procedures governing operationsare categorically different from those of the private sector,this requires human and other intangible assetinvestments by private organizations. In particular, thepublic and private interaction requires a high level ofhuman asset specificity and in turn would require a governancestructure that enhances cooperation and tacitcollaboration among those involved parties. This alsoimplies that cooperation among private and public organizationsis necessary to reduce transaction costs, forthey must work to earn trust from each other.
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