Question

Provide real-world examples of the four types of specialized investment, use any resources you can obtain

1. Site specificity

2. Physical-asset specificity

3. Dedicated assets

4. Human capital

Answer 1

Answer:

Four types of specialized investment :

1. Site specificity.
2. Physical asset specificity.
3. Dedicated asset.
4. Human capital.

1. Site specificity : Site specificity relates to an investment made in a site that in to much closeness to a buyer and seller. This closeness of assets for different stages of production reduces inventory, transportation and processing cost.

Buyer and seller must locate their plants close to each other to be able to engage in exchange. This investments are made in order to faciliate a particular trading relationship.

For example : Electric power plant is locate close to coal mine to minimize the transportation cost of coal, the electricity is less expensive to ship than the coal. So that, a natural resources available at a certain location and movable only at great cost.

2. Physical asset specificity :  Physical asset specificity enclose investments in physical assets relating to the trading relationship. This situation where the capital equipment needed to produce an input designed to meet the needs of buyer.

For example :  Equipment and machinery produce inputs specific to customer or specialized to use an input of a supplier . In other word specialized machine tool or system designed for a single purpose.

3. Dedicated assets :  Dedicated assets are related to the general assets. Dedicated assets purchase in connect with long term contract trading relationship. So that, dedicated assets are investment made by a firm that is allowable to exchange with buyer.

For example : A discrete investment in a plant that can not readily must be put to work for others.

4. Human capital : Human capital is the collection of knowledge and expertise that the specific to one trading partner. In the many employment relation, in that workers should learn skills to work for a particular firm. If these skills are not useful to the other employer, they constitute a specialized investment. Human capital received a skill of an employee and enclose specialized experience to a employee relation.

For example : Highly specialized human skills, arising in a learning by doing fashion and like the knowledge or skill that is not transferable as limited value to the other situation.