Sunk costs: a framework for economic geography

Abstract

A framework for research on corporate strategy and restructuring in economic geography which focuses explicitly upon the role of sunk costs is proposed. The management of sunk costs in contrasting ‘domains of competition’ is discussed, and fifteen analytical propositions about the economic and spatial logic of sunk costs are outlined. Claims are advanced that the logic of sunk costs can accommodate both spatial fixity and spatial plasticity and can help bridge the separate, apparently distinctive, notions of restructuring and post-Fordism. Illustrative examples are drawn from both the manufacturing and service sectors. The regional effects of alternative corporate strategies with respect to sunk costs and an assessment of the increasing significance of new financial instruments designed to liberate firms from the history and geography of production are outlined. The conclusion sets out a comparative evaluation of sunk costs and transaction costs as heuristic frameworks in economic geography.

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