ASSET SPECIFICITY AND CORPORATE POLITICAL ACTIVITY IN REGULATED INDUSTRIES

I examine corporate political activity in regulated industries, which is conceptualized in the literature as transactions in a political marketplace. I incorporate transaction costs in political markets and propose that under high asset specificity, corporate political activity and internalization are substitutes because favorable public policy also mitigates asset specificity. Firms choose corporate political activity when transaction costs are lower than internalization costs. I outline conditions that lower transaction costs and analyze how firms lower transaction costs by embedding political transactions in policy networks.