A hold- up problem is:
A)when a firm tries to capture the rents caused by a sunk investment.
B)when you get robbed.
C)when a firm demands more money for completing a task.
D)when nature prevents you from completing a task.

Question

Quizplus · Accepted Answer

A hold-up problem occurs when a firm has made a sunk investment and then tries to capture the rents from that investment. The party that the firm is in negotiations with may demand a larger share of the rents due to the sunk costs the firm has already incurred. The hold-up problem arises when the party makes this demand because the sunk costs cannot be recovered if the deal falls through.

A Hold- Up Problem Is