Sunk Costs and the Variability of Firm Value over Time
AbstractEmpirical implications for the variability of firm value in various models of industry evolution are discussed. Under certain conditions, learning models imply that industries with higher sunk costs should exhibit greater difference in firm value between entering and exiting firms whereas external shocks models imply that industries with higher sunk costs should exhibit greater variability of firm value over time relative to a numeraire industry. The theoretical results from external shocks models are consistent with agricultural data from California and Florida. Copyright 1995 by MIT Press.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics & Statistics.
Volume (Year): 77 (1995)
Issue (Month): 3 (August)
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- Gschwandtner, Adelina & Lambson, Val E., 2002. "The effects of sunk costs on entry and exit: evidence from 36 countries," Economics Letters, Elsevier, Elsevier, vol. 77(1), pages 109-115, September.
- Adelina Gschwandtner & Val E. Lambson, 2009. "Sunk Entry Costs, Sunk Depreciation costs, and Industry Dynamics," Vienna Economics Papers, University of Vienna, Department of Economics 0902, University of Vienna, Department of Economics.
- Adelina Gschwandtner & Val E. Lambson, 2004. "Sunk costs, Profit Volatility, and Turnover," Vienna Economics Papers, University of Vienna, Department of Economics 0405, University of Vienna, Department of Economics.
- David Greenstreet, 2007. "Exploiting Sequential Learning to Estimate Establishment-Level Productivity Dynamics and Decision Rules," Economics Series Working Papers, University of Oxford, Department of Economics 345, University of Oxford, Department of Economics.
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