The Silverdome and Sunk Costs


Kurt Bouwhuis, Mackinac Center Intern,

This morning, I read an article titled Pontiac opens bidding for Silverdome.  The article primarily focuses on the costs of the facility as well as various people’s opinions of the auction.

The article fails to recognize the economic idea of a sunk cost.  The initial cost to build the stadium as well as the $1.5 million a year maintenance fee are both unrecoverable.  As a result, these costs should be ignored when making decisions about it’s potential future uses.  If the stadium sells for a “low” price, it is not a steal – the price someone offers will be based on the future expectations of the value the stadium as well as the next best alternative use of the bidder’s money.

Hat-tip to James Hohman

Advertisements

2 thoughts on “The Silverdome and Sunk Costs

  1. So what are some future useages of the Silverdome. The UAW could buy it and turn it into a Union head quarters so all of the members in their job bank could hang out while they are waiting for jobs.

  2. Oh that last comment was a tough one. I’ll try to top it- maybe Jimmy Hoffa is buried under it? Betcha the guy will eventually level it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s