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What Fraction of a Capital Investment is Sunk Costs?

Author

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  • Marcus Asplund

Abstract

To what extent are capital investments sunk costs? This question is addressed by examining the salvage values of discarded metalworking machinery. Even though such assets are expected to be non‐specific, many discarded assets are scrapped rather than sold on second‐hand markets. Econometric results suggest that firms can only expect to get back 20–50 percent of the initial price of a ‘new’ machine once it is installed. The results also indicate differences in value‐age profiles across firms, but provide only weak support for the hypothesis that salvage values are particularly low during recessions.

Suggested Citation

  • Marcus Asplund, 2000. "What Fraction of a Capital Investment is Sunk Costs?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 287-304, September.
    • Handle: RePEc:bla:jindec:v:48:y:2000:i:3:p:287-304
    DOI: 10.1111/1467-6451.00124
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    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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