Post Investment Holding In Chapter 5 Froeb Discussed

Post Investment Holdupin Chapter 5 Froeb Discussed Post Investment Hol

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.

Identify a sunk 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? Suppose your employer took note of your decision to get an MBA and appointed you as the interim director for a 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.

Paper For Above instruction

The concept of post-investment holdup is a critical issue in contract theory, especially regarding sunk costs and specific investments that cannot be recovered if the relationship or agreement is terminated. To explore this phenomenon, consider a personal example: I invested significant resources, including time and effort, in acquiring specialized training for my current role at a company. This training was highly tailored to the company’s needs, and therefore, it represented a contract-specific human capital investment. This sunk cost became susceptible to post-investment holdup if the employer, after witnessing my increased capabilities, were to attempt to alter the terms of my employment or even terminate my role unfairly, especially if external circumstances or organizational changes pushed them to do so.

Specifically, in a hypothetical scenario aligned with the case presented in Froeb's discussion, suppose my employer noted my decision to pursue an MBA to enhance my skills for the company’s benefit. Subsequently, I was appointed as the interim director of a new department—a recognition of my investment in both skills and organizational commitment. However, shortly after completing my MBA, the company merged with another organization. As a result of the merger, the new department I managed was abolished, and I was reassigned or let go. This event exemplifies post-investment holdup because my employer’s initial investment in appointing me and developing the department was made based on mutual expectations, but these were disrupted by unforeseen organizational changes following the merger. The employer’s decision to dissolve the department might be driven by strategic reorientations, but it leaves me with a sunk investment—my time, effort, and the skills gained—without the expected returns.

Financial injury in this scenario manifests as the loss of tangible and intangible assets. Tangibly, I incurred costs related to my education and efforts—time, tuition, and reduced productivity during my studies—that are now unrecoverable. Intangibly, my professional reputation and career trajectory may suffer due to the abrupt termination of my role. From the employer’s perspective, the merger may have been necessary for strategic growth, but neglecting to account for the investments made by employees such as myself can lead to morale issues and decreased productivity. This highlights the importance of flexible contractual arrangements and commitment mechanisms that can mitigate the effects of post-investment holdup and ensure fair treatment of invested resources (Rozeff & Zmijewski, 1984).

This scenario underscores the importance of contractual safeguards and organizational policies to minimize the negative effects of post-investment holdup. For example, employment agreements could include clauses that protect employees’ investments or provide severance packages that reflect their specific contributions. Without such safeguards, organizations risk demotivating their workforce and discouraging future investments of time and effort, which are vital for innovation and growth (Williamson, 1985). In conclusion, post-investment holdup can result in significant financial injury when organizational changes, such as mergers, modify the original mutual expectations of invested parties. Recognizing and addressing such risks proactively through contractual design and organizational policies is crucial for reducing the adverse impacts of sunk costs and specific investments.

References

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