Firms might not commit to spending sunk costs because of:
A)the property rights problem.
B)the bankruptcy problem.
C)the free rider problem.
D)the hold- up problem.

Question

Quizplus · Accepted Answer

The hold-up problem is when one party has already made sunk investments, and the other party uses this to their advantage by demanding a larger share of the benefits or changing the terms of the agreement. This uncertainty makes firms hesitant to commit to spending sunk costs. The property rights problem relates to the ownership and enforcement of property rights. The bankruptcy problem occurs when a firm goes bankrupt and cannot pay off their debts. The free rider problem is when individuals or firms benefit from others' investments without contributing to the costs.

Firms Might Not Commit to Spending Sunk Costs Because Of