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Sunk Costs and Resource Mobility: Implications for Economic and Policy Analysis

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  • BRADFORD L. BARHAM

    ()

  • JEAN-PAUL CHAVAS

    ()

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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bradford L. Barham & Jean-Paul Chavas, 1997. "Sunk Costs and Resource Mobility: Implications for Economic and Policy Analysis," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 410, Wisconsin-Madison Agricultural and Applied Economics Department.
  • Handle: RePEc:wop:wisaes:410
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    References listed on IDEAS

    as
    1. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, pages 1264-1292.
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    3. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
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    5. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, June.
    7. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
    8. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, pages 83-100.
    9. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    10. 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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