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

  • Bradford L. BARHAM

    ()

  • Jean-Paul CHAVAS

    ()

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.

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File URL: http://agecon.lib.umn.edu/wis/stpap410.pdf
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Paper provided by University of Wisconsin Madison, AAE in its series Staff Papers with number 410.

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Date of creation: Apr 1997
Date of revision:
Handle: RePEc:wop:wiaesp:410
Contact details of provider: Postal: University of Wisconsin, Dept. of Agricultural and Applied Economics, 427 Lorch Street, Madison, WI 53706
Phone: 608-262-8966
Fax: 608-262-4376
Web page: http://www.aae.wisc.edu/
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  1. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474.
  3. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  4. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  5. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  6. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  7. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
  8. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  9. Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June.
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