Regional Development and Management of Sunk Capital: Some Issues in Project Evaluation
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Government intervention aimed at regional development can be justified where there are opportunities for
profitable investement of public funds. Benefit: cost analysis can be an effective tool for economic evaluation
of regional development project proposals, providcd the distinction between sunk costs and historical outlays
is recognised. Because the cost of previous development is sunk, it is appropriate to value existing assets at
their opportunity cost. In terms or ex ante project appraisal, historical outlays and current replacement costs
are irrel...ant. The impact of "Rate of Return" capital management policy and renewals accounting on
project viability is discussed in the perspective of regional development.