Asset specificity and the fear of exploitation Hwang, Peter

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Hwang, Peter
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Journal of Economic Behavior & Organization
Economics; Capital investments -- Psychological aspects; Business
To link to full-text access for this article, visit this link: Byline: Peter Hwang Keywords: Asset specificity; Fear of exploitation; Trust; Time horizon Abstract: If asset specificity renders the investing party dependent ex post, why would the ex ante willingness to make relationship-specific investments vary? We show how specific investments generate both positive and counter-negative cooperative incentives. We also observe the influences of trust and time horizon on these incentives, which are aggregated to derive the specific investments effect (SIE). Our result suggests that while the fear of exploitation increases proportionally to the magnitude of specific investments and the attendant quasi-rents, it grows exponentially with the deterioration of inter-personal (trust) and/or inter-temporal (time horizon) contexts. Author Affiliation: Department of Business Policy, NUS Business School, National University of Singapore, 1 Business Link, Biz1 Building, Singapore 117592, Singapore Article History: Received 7 February 2002; Accepted 5 April 2004
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