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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 68:
What Fraction of a Capital Investment is Sunk Cost?

Marcus Asplund

Abstract: In order to determine to what extent capital investments are sunk costs this study deals with salvage values of discarded metalworking machinery. Even though these assets are expected to be non-specific many of the discarded assets are scrapped rather than sold on second-hand markets. Econometric results suggests that firms can only expect to get back 20-50 percent of the initial price for a "new" machine once it is installed. The results also show differences in value-age profiles across firms, but give only weak support for the hypothesis that salvage values are particularly low in recessions.

Keywords: Sunk cost; second-hand market; salvage value; machine tools; (follow links to similar papers)

JEL-Codes: C24; D24; (follow links to similar papers)

27 pages, September 1995, Revised September 24, 1999

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This paper is published as:
Asplund, Marcus, (2000), 'What Fraction of a Capital Investment is Sunk Cost?', Journal of Industrial Economics, Vol. XLVIII, September, pages 287-304

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