A construction project in Congressman Foghorn\'s district is unfinished. Foghorn

Question

A construction project in Congressman Foghorn's district is unfinished. Foghorn has asked that a new appropriations bill include funds to complete the project, despite a report by an independent agency that the project is a waste of taxpayer money. Foghorn's project is a bridge that crosses a river between two cities in his district. The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge, located closer to the same two cities Foghorn's bridge will connect, already exists and can accommodate all traffic between the two cities. Foghorn argues that if the bridge project is not completed, the $50 million already spent will have been wasted. Is Foghorn's argument economically rational? Explain your answer.

Explanation / Answer

Foghorn's argument, in the above case, is economically irrational as the sunk cost incurred should not become a basis of making future decisions. All the basis of making an economically viable decision must revolve arounf expected outflow of resources in future with expect inflow of benefits in future. In the given case, the future benefit is almost nil as one bridge which is already solving the purpose of commuters has already been built.

Although, the already incurred sunk cost of $50 million cannot be recovered in present scenario, making further investments in a project with almost zero economic benefit makes no sense at all. The tax payer's money should not be wasted any further on such a project.

Hence, the foghorn's argument is irrational in the given case.

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