Asset Specificity and the Political Behavior of Firms: Lobbying for Subsidies in Norway

Abstract

Previous research into endogenous trade policy has described extensively the political incentives of firms with specific assets, but no studies have shown directly that firms behave as predicted. We adopt insights from transaction costs economics to develop measures of asset specificity and to investigate how variation in these measures affects the political behavior of firms. In particular, we examine the lobbying choices of Norwegian firms in the 1980s. Given available subsidy funds from Norway's oil boom and some government decisions in the 1970s, firms with more specific assets faced potentially greater losses from adjusting to new activities in the face of competitive pressures and thus had greater incentives to lobby for subsidies to protect themselves. Joint contacting of Parliament and government on behalf of firm interests by representatives of both management and labor should be particularly likely where firms had specific assets. Data analysis shows that asset specificity, as indicated by R&D intensity and job immobility, predicts joint contacting independently of plausible alternative explanatory variables like firm size and export orientation.