Sunk cost of local elected representatives in situation of fiscal competition: An example of escalating commitment

M Morer,D Ansel,F Michelik,F Girandola

doi:10.1016/j.erap.2017.11.003

Abstract

IntroductionCompetition between French local communities to build infrastructures to attract enterprises and residents could sometimes result in irrational public spending. ObjectivesShow the influence of psychological factors and the phenomenon of escalating commitment in particular on this type of economic decision. MethodWe conducted a survey comprising four scenarios which were sent to 285 local elected representatives and we study the impact of the factors “Amount of sunk costs” and “Level of project completion” on two dependent variables, “the desire to complete the project” and “the judgment regarding the quality of the investment”. The scenarios presented a project which involve servicing a site and the construction of a road infrastructure in order to attract an enterprise. ResultsIn conformity with the works of Boehne and Paese, whatever the dependent variable, the level of project completion significantly explains the escalation of commitment. The hypothesis of “sunk costs” is confirmed when the escalation of commitment is measured by the dependent variable “desire to complete the project”. ConclusionWe have highlighted the effect of sunk costs and level of project completion on the decisions of local elected representatives, enriching the understanding of economic decision factors.

Highlights

HAL is a multi-disciplinary open access archive for the deposit and dissemination of scientific research documents, whether they are published or not
Method. – We conducted a survey comprising four scenarios which were sent to 285 local elected representatives and we study the impact of the factors “Amount of sunk costs” and “Level of project completion” on two dependent variables, “the desire to complete the project” and “the judgment regarding the quality of the investment”
Conclusion. – We have highlighted the effect of sunk costs and level of project completion on the decisions of local elected representatives, enriching the understanding of economic decision factors

Summary

Introduction

HAL is a multi-disciplinary open access archive for the deposit and dissemination of scientific research documents, whether they are published or not. – We conducted a survey comprising four scenarios which were sent to 285 local elected representatives and we study the impact of the factors “Amount of sunk costs” and “Level of project completion” on two dependent variables, “the desire to complete the project” and “the judgment regarding the quality of the investment”. – In conformity with the works of Boehne and Paese, whatever the dependent variable, the level of project completion significantly explains the escalation of commitment. – Nous avons présenté quatre scenarii à 285 élus locaux et étudié l’impact des facteurs « montant de la dépense gâchée » et « niveau d’achèvement du projet » sur deux variables dépendantes : « le désir d’achever le projet » et « le jugement quant à la qualité de l’investissement ». L’hypothèse de la « dépense gâchée » est vérifiée lorsque l’escalade d’engagement est mesurée par le « désir d’achever les projet »

Methods

Findings

Discussion

Conclusion