sunk costs

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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 ?
As part of the settlement, BHMC will pay EPA up to $20 million, on behalf of Placer Mining, in satisfaction of EPAs past costs claim against Placer Mining.
And the way to do that is to ask yourself this: what would I do if I had not incurred any past costs in this matter?
They also agreed to collectively reimburse EPA more than $600,000 for past costs incurred.
Total will pay an overall consideration to Tullow of USD900m, representing a reimbursement of a portion of past costs, payable in instalments along the development of the project, with an initial payment of USD100m at closing.
The state Department of Environment Quality is also contributing a total of $410,000 to the cleanup project, including past costs, using funds it received from a 2014 settlement with the dry cleaners' insurer.
Outlining the terms of the arrangement, Eco Atlantic will transfer 25% working interest in the Cooper Block to allow Tullow in return for a carry of Eco Atlantic's share of the costs to execute and process the seismic programme, and the reimbursement of 25% of Eco Atlantic's past costs of approximately US$1 million.
In essence the sunk cost effect is predicated upon the influence of past costs and the unwillingness of individuals to let go of those past costs (Teger, 1980; Northcraft & Neale, 1986).
We object to this terminology, since those costs could simply be named as past costs.
1 million by way of purchase price and subject to final adjustment, reimbursement of approximately US$415,000 in past costs.
The amending agreement finalises certain past costs under the original contract in a deal worth CAD34m from Canadian Natural to NACG.