ECON - Investment Holdup

ECON

Post-Investment Holdup

In chapter 5 Froeb discussed post-investment holdup as sunk cost problem associated with contract specific fixed investments. The modern theory of contracts is sometimes called the theory of joining wills which simply means, when parties make an agreement they are joining together to complete an endeavor of mutual interest. The problem with all contracts that endure over time is that not all potential challenges can be anticipated. The idea of joining wills is that parties will attempt to seek accommodations to advance their mutual interest, so long as the return on the invested activity pays off. Froeb illustrates the idea by the example of marriage as a contract.

1. Identify a sunk cost investment you have made or one      that your company/organization has made.
2. How might the investment be, or has been, subject to      post-investment holdup?
3. Suppose your employer took note of your decision to get      an MBA and appointed you as the interim director for new department.      Shortly after you completed your degree, your company merged with another      company and the new department you were managing was abolished? Is this a      post investment holdup? Is there a financial injury?

Remarks:  The response must be detailed and answer the primary question and subpart of the primary question.  Write clearly, concisely, use proper grammar and writing mechanics. You must use APA format and cite (2) references.