Conceptualizing sunk costs in economic geography: cost recovery and the fluctuating value of fixed capital

Abstract

Several studies in economic geography have attempted to understand the spatial implications of sunk costs. In this paper it is argued that, although these efforts are most valuable, issues remain that deserve closer examination. The first begs the question whether the introduction of this concept into economic geography has occurred with due regard to the contexts set by the academic fields where the notion originates. If this is not the case, then perhaps some doubt should be cast on the suitability of the imported definition and theoretical frameworks for the geographical purposes envisaged. The second issue concerns the regional dimension of sunk costs, given that most of the literature focuses on their importance at the corporate level. A final concern relates to the empirical measurement of these costs. These issues serve as the starting point of the formulation of an alternative view of sunk costs. It is suggested here that the issue of sunk costs is, in the final analysis, a problem of realizing value. Concepts of fixed capital measurement and depreciation offer the basis of an alternative theoretical framework for conceptualizing sunkness.