sunk costs


Also found in: Medical.

Sunk costs

Costs that have been incurred and cannot be reversed.

Sunk Costs

Money that has already been spent. Sunk costs are important because a company may use, for example, an old piece of equipment to make a new product. In this case, sunk costs are positive because no further investment is required. On the other hand, a sunk cost may be negative; for example, that old piece of equipment may break down after its warranty has expired. This means that the owner will not recover the costs no matter what happens.

sunk costs

any expenditure on durable and specific FACTOR INPUTS, such as plant and machinery, that cannot be used for other purposes or easily be resold. Such sunk costs have no affect on MARGINAL COSTS and do not influence short-term output decisions.

The presence of sunk costs through investment in TRANSACTION-specific assets can affect the relative bargaining power of parties to a CONTRACT. See ASSET SPECIFICITY. See also OPPORTUNITY COST, BARRIERS TO EXIT.

References in periodicals archive ?
Resource constraints may explain apparent sunk costs fallacies not only in business investment but also in other kinds of investment, for example, in careers.
On the one hand, sunk costs are possible deterrents to competition, working in favor of an existing incumbent.
The prison facility overhead related to depreciation and interest expense are in effect sunk costs.
PINDYCK (2004) shows that failure to account for sunk costs leads to distortions in investment incentives and distortions in unbundled network elements, a variant of access pricing.
But it is also a simple basic fact of the human psyche that individuals receive psychic pain from sunk costs (Arkes and Blumer 1985).
Brand creation can make industry and this adds to the substantial sunk costs and big-scale economies to be hurdled by a new entrant.
Throwing good money after bad: the effect of sunk costs on the decision to escalate commitment to an ongoing project.
Forecast benefits and cost in each year not excluding sunk costs and including opportunity costs
In one online study, American participants reported about how much they typically focus on the present moment, and also read 10 sunk-cost scenarios--such as whether to attend a music festival that had been paid for when illness and bad weather made enjoyment unlikely--and then reported how much they would let go of sunk costs in each of them.
In one online study, participants reported about how much they typically focus on the present moment and also read 10 sunk-cost and then reported how much they would let go of sunk costs in each of them.
In other words, sunk costs are irrelevant because they do not contain information about the future effects of the decision.