What drives the allocation of specific investments between buyer and supplier?

This article investigates why either the buyer or the supplier would accept the greater risks associated with asymmetrical investments in specific assets in an exchange relationship. It proposes theoretical arguments and offers empirical evidence from a sample of 149 buyer–supplier relationships in the German construction industry showing that, with a given level of contractual safeguards, power imbalance and the interaction of power imbalance and trust drive the allocation of specific investments between buyer and supplier. The study thus highlights how resource dependence and trust arguments can enrich transaction cost theory in explaining the allocation of specific investment in buyer–supplier relations.