Asset Specificity and Specialization in the U.S. Construction Industry: A Transaction Cost Theory Interpretation

The great variety of projects in the construction industry requires different technological and production capabilities by firms. This diversity leads firms to specialize in a particular type of construction project or task in order to optimize the use of in-house production resources. In this paper, asset specificity, one of the principles of transaction cost theory is used to analyze and classify the characteristics of U.S. contractors in terms of technologies, specialization and production arrangements. Successive census data are used to verify the theoretical considerations of the analysis. The findings show that asset specificity is a major determinant of US firms’ specialization.