UW-Madison UW-Madison

Staff Paper No. 410 - Abstract

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

Bradford L. Barham [barham@mailplus.wisc.edu]
Jean-Paul Chavas [jpchavas@wisc.edu]

Staff Paper No. 410, April 1997, 15p.


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.
Last updated on Thu, Jun 2, 2005 11:06am