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

Question

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.

Answer 1

Foghorn's argument is not rational. The $50 million that has been spent on bridge construction is a sunk cost that should be ignored when deciding whether to spend additional tax revenue on the bridge. Foghorn should argue that the additional, or marginal, cost of finishing the project is less than the additional benefits that would be provided by the second bridge. If the estimated additional benefits are less than the additional cost the bridge should not be finished.