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 contract
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.
- Identify a sunk cost investment you have made or one that your company has made.
- How might the investment be, or has been, subject to post-investment holdup?
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?
PLEASE DO NOT RELY ON WIKIPEDIA, INVESTOPEDIA OR ANY OTHER PEDIA AS A REFERENCE AT ANYTIME IN THIS COURSE.