Question: Post-Investment Holdup

In chapter 5 Froeb discussed post-investment holdup as a sunk cost 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.

1. Identify a sunk cost investment you have made or one that your company 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?