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Book cover: Research in Rural Sociology and Development

Research in Rural Sociology and Development

ISSN: 1057-1922
Series editor(s): Professor Terry Marsden

Subject Area: Sociology and Public Policy

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Sunk Costs, Resource Extractive Industries, and Development Outcomes


Document Information:
Title:Sunk Costs, Resource Extractive Industries, and Development Outcomes
Author(s):Bradford L. Barham, Oliver T. Coomes
Volume:10 Editor(s): Paul S. Ciccantell, David A. Smith, Gay Seidman ISBN: 978-0-76231-162-0 eISBN: 978-1-84950-314-3
Citation:Bradford L. Barham, Oliver T. Coomes (2005), Sunk Costs, Resource Extractive Industries, and Development Outcomes, in Paul S. Ciccantell, David A. Smith, Gay Seidman (ed.) Nature, Raw Materials, and Political Economy (Research in Rural Sociology and Development, Volume 10), Emerald Group Publishing Limited, pp.159-186
DOI:10.1016/S1057-1922(05)10008-0 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Article type:Chapter Item
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.

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