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Sunk Costs And Resource Mobility: Implications For Economic And Policy Analysis

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  • Barham, Bradford L.
  • Chavas, Jean-Paul

Abstract

The implications of sunk costs for many key questions in agricultural economics have yet to be explored. This paper uses a dynamic model of investment behavior to explore how sunk costs can shape market outcomes in ways that might not match predictions of standard competitive models. Applying the model to several key issues in agricultural markets and international trade offers new perspectives that challenge conventional wisdoms. Institutional and policy innovations are also examined for their potential to improve welfare outcomes when sunk costs impede factor mobility.

Suggested Citation

  • Barham, Bradford L. & Chavas, Jean-Paul, 1997. "Sunk Costs And Resource Mobility: Implications For Economic And Policy Analysis," Staff Papers 12686, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    • Handle: RePEc:ags:wisagr:12686
    DOI: 10.22004/ag.econ.12686
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    References listed on IDEAS

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    1. Wesseler, J. & Weichert, M., 1999. "Der Wert zusätzlicher Informationen bei Investitionsentscheidungen mit einem hohen Grad an Irreversibilität," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 35.

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