ABSTRACT
This chapter focuses on agricultural markets and trade policy, showing how they can distort economic outcomes and how institutional and policy innovations might improve welfare outcomes when factor mobility is impeded. It reviews the causes of sunk costs, suggesting reasons why they may be more prevalent than is commonly perceived by economists. The chapter explores the way sunk costs could affect agricultural market performance and trade policy. There are also a set of core issues in international economics where conventional wisdom may be challenged by incorporating imperfect resource mobility associated with sunk costs and uncertainty. The knowledge that interactions between sunk costs and risk adversely affect efficient resource allocation raises two issues, namely whether sunk costs and risks are subject to management. The effects of sunk costs and imperfect resource mobility on the agricultural and food sector warrant more attention than they have received to date.
