Sunk Costs, Resource Extractive Industries, and Development Outcomes

Abstract

Sunk costs are a key feature of extractive industries that profoundly shape regional economic development outcomes. In this chapter, we argue that sunk costs do so by influencing both the investment behavior of firms and the organization, as well as the performance, of extractive industries in ways that often deviate substantially from traditional neoclassical models of competitive markets with resource mobility. Sunk costs are defined, and the features that give rise to such costs are identified, followed by an analysis of the impacts of sunk costs on firms, regions, and economies. Sunk costs are shown to underlie two important phenomena associated with the economic experience of resource extraction – “Dutch Disease” and the “resource curse”. The chapter concludes with a discussion of the need for development policy to incorporate often overlooked sunk cost considerations into efforts to promote economic development in extractive economies.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 22 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.