Asset specificity and governance structures in beef cattle in Paraná, Brazil

Abstract

Despite the economic prominence of Brazilian beef cattle, it presents coordination problems throughout its history. At least three different subsystems coexist, and are here called conventional, differentiated and highly differentiated. They vary in terms of investments in differentiation. According to the Transaction Cost Economics, these subsystems may envolve asset specificity, requiring complex governance structures. This article’s objective was to compare, focusing on asset specificity, how the transactions are organized in the conventional, differentiated and highly differentiated system of beef cattle in Paraná, Brazil. This study is qualitative and descriptive, where 24 semi-structured interviews were conducted with subsystems’ members. Results show that low asset specificity and governance under the market mechanism is part of the conventional system. The differentiated system involves asset specificity and transactions organized in hybrid ways. High asset specificity is specific to the highly differentiated system, and therefore it tends to vertical integration. In conclusion, the choice of the governance structure followed a continuum going from the spot market structure to vertical integration, as the specificity of assets increased. Despite this choice, flaws in these chains are still present, therefore compromising their continuity.