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