Relationship-specific exchange:
A) is a consequence of profit sharing.
B) makes firms use spot markets.
C) occurs because of specialized investments.
D) reduces worker shirking.

Question

Quizplus · Accepted Answer

Relationship-specific exchange occurs when one party has made specialized investments to meet the needs of the other party. This creates interdependence and reduces the likelihood of opportunistic behavior by either party. This type of exchange is common in long-term partnerships, such as between a firm and its suppliers or customers. Profit sharing (A) may incentivize workers but does not necessarily create relationship-specific exchange. Spot markets (B) are used for one-off transactions and do not require specialized investments. Worker shirking (D) may be reduced through monitoring and incentives but is not directly related to relationship-specific exchange.

Relationship-Specific Exchange