Question

Identity a sink cost investment you have made or one that your company/organization has made., How might the investment be, or has been, subject to post-investment holdup?

Answer 1

Ans; sunk costs are found in my construction company. Let's say a construction company has starts development of a new housing sub-division. The lots and initial construction materials have been purchased, and framing has started. A total of $5 million has been invested In that.

And suddenly, a crisis in the banking industry causes a economic decline, and subsequently the bottom falls out of the housing market. The sub-division land is now worth much less than the construction company paid for it. If the company rejected the project, it will take a $5 million loss. Some company head want to finish the houses and sell them to recover at least a portion of the costs already spent - sunk costs. But it will cost an additional $7 million to complete the project.

---The investment be, subject to post-investment holdup by ; post-investment holdup as sunk cost problem related 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 attempt of mutual interest. The problem with all contracts that undergo over time is that not all potential challenges can be expected. The idea of joining wills is that parties will try to seek accommodations to advance their mutual interest, so long as the return on the invested activity paid off.

Thanks..for ur support