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Measuring Sunk Costs in Agricultural and Food Industry Assets: Why Some Assets Sell Below Appraisal

Author

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  • Boland Michael A.

    (Department of Applied Economics, The Food Industry Center, University of Minnesota, 317B Ruttan Hall, 1994 Buford Avenue, St. Paul, MN 55108, USA)

  • Crespi John M.

    (Department of Agricultural Economics, Kansas State University, 342 Waters Hall, Manhattan, KS 66506, USA)

  • Turner Tracy M.

    (Department of Economics, Kansas State University, 327 Waters Hall, Manhattan, KS, USA)

Abstract

Asset obsolescence or external obsolescence isa decline in the economic value of capital because ofa decrease in demand for the capital’s services. Measurements of sunk costs typically use appraised values of capital. In food and agricultural industries facing asset obsolescence due to government policy, appraised values may be greatly overstated and this has implications for research on industrial structure. A theoretical model to account for the appraisal error is developed and the method is applied to the U.S. sugar beet industry. The sugar beet industry displays symptoms of asset obsolescence. Our estimates indicate that plant appraisals using currently accepted practices greatly overstated the true value of these assets in 2006.

Suggested Citation

  • Boland Michael A. & Crespi John M. & Turner Tracy M., 2014. "Measuring Sunk Costs in Agricultural and Food Industry Assets: Why Some Assets Sell Below Appraisal," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 53-63, January.
    • Handle: RePEc:bpj:bjafio:v:12:y:2014:i:1:p:11:n:11
    DOI: 10.1515/jafio-2014-0009
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    References listed on IDEAS

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    Cited by:

    1. Marette Stéphan, 2018. "Illegitimate or Legitimate Non-Tariff Measures," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(2), pages 1-18, November.
    2. Marette, Stephan, 2017. "Quality, market mechanisms and regulation in the food chain," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(3), February.
    3. Stéphan Marette & Vincent Réquillart, 2020. "Dietary models and challenges for economics," Review of Agricultural, Food and Environmental Studies, Springer, vol. 101(1), pages 5-22, October.

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    More about this item

    Keywords

    sunk costs; obsolescence; real estate appraisal; stranded capital; sugar beet;
    All these keywords.

    JEL classification:

    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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