Ellman, MatthewUniversitat Pompeu Fabra. Departament d'Economia i Empresa2017-07-262017-07-262004-11-01Journal of Law Economics and Organization, Vol. 22, No. 1, 2006http://hdl.handle.net/10230/705Previous analysis has shown that traders may opt for specific technologies with no joint productivity advantage as a way to commit themselves to trading jointly, but only when long-term contracting is infeasible. This paper proves that speciÞcity can also be optimal (by relaxing the budget-balance constraint) in settings with long-term contracting. Traders will opt for specificity when one trader makes a cross-investment and either (1) this cross-investment has a direct externality on the other trader, (2) both parties invest, or (3) private information is present. The specificity (e.g. from non- salvageable investments, specific assets and technologies, narrow business strategies, and exclusivity restrictions) is equally effective regardless of which trader's alternative trade payoff is reduced. Specificity supports long-term contracts in a broad range of settings - both with and without renegotiation. The theory also offers a novel perspective on franchising and vertical integration.application/pdfengL'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commonsinfo:eu-repo/semantics/workingPaperspecificityhostages long-term contractingcross-investmentsbudget-balancerenegotiationManagement and Organization Studiesinfo:eu-repo/semantics/openAccess