Regional economic performance and sunk costs

Regional economic performance and sunk costs, Reg. Studies 33, 843-855. In industrial organization economics sunk costs, defined as unretrievable costs in the case of market exit, are assumed to determine market structure, firm entry and exit, enterprise investment and pricing strategies. Sunk costs in economic geography have been considered as an ingredient of firm behaviour, an analytical device linking 'spatial fixity' and 'spatial plasticity' and a source of industrial rigidity It is significant that geographical research to date on sunk costs focuses mainly on their operation in theory. An alternative view is developed here where 'sunkness' derives from firms' inability to realize in the market the full value of their product and the residual value of capital investment. The parallel examination of value-added, labour cost and capital depreciation facilitates such a measure of 'cost recovery' for each region. Differential cost recovery then becomes both a cause and an effect of differential regional economic performance. Manufacturing in the regions of Greece during the 1980s provides the context.