Self-enforcing transactions: Reciprocal exposure in fisheries

This article examines the role transaction-specific investments play in forming self enforcing contracts between fishers and processors in the market for raw fish. Though some contracts are simple spot exchanges, others are accompanied by vertical ties, such as processor provision or financing of vessels, ancillary gear, and credit. The article hypothesizes that. owing to the temporal specific investments undertaken by some fishers, reciprocal ex ante specific investment costs are incurred by some processors in order to reduce the probability of ex post holdup. In fisheries where holdup is not a problem, spot exchanges arise. A new dataset on the characteristics of 726 vessel owner/operators and 75 fish buyers is used to perform an ordered probit analysis. The contractual arrangements vary both across and within different fisheries, and are strongly correlated with indicators of temporal specificity.