A220: Quebec embraces sunk cost fallacy, says MEI
Montreal, July 23, 2024 – Economy Minister Pierre Fitzgibbon is making a mistake by reinjecting hundreds of millions of dollars into Airbus’s A220 program, says the Montreal Economic Institute in reaction to an announcement made earlier this afternoon.
“Whatever Quebec does, the tax dollars that it risked in the A220 project are gone, and placing another bet with our money won’t change that,” says Renaud Brossard, Vice President of Communications at the MEI. “Minister Fitzgibbon is providing us with an excellent demonstration of the sunk cost fallacy.”
In economics, the sunk cost fallacy refers to our tendency to consider costs already sunk into a project, which are therefore irrecoverable, to motivate the injection of new money. It is also known as the “Concord fallacy.”
Early this afternoon, the Quebec government announced that it was reinjecting $300 million US – or roughly $400 million Canadian – into Airbus’s A220 project.
The government is justifying this new expenditure by saying that it allows it to delay the date for the repurchase of its shares in the hope of recovering the investment it has made over the years.
It’s is the same justification used on the occasion of a first reinjection of $380 million of funds in February 2022.
This followed an initial investment of $1.2 billion in 2015, when the project was known as Bombardier’s CSeries.
In all, this brings the Quebec government’s total wager on Airbus’s A220 program to roughly $2 billion since 2015.
“With this new reinjection of funds from Quebec, the money laid on the line to try to save the initial bet is getting dangerously close to matching that initial amount,” says Mr. Brossard. “At some point, the Legault government will have to realize that it is throwing good money after bad, and that it has already lost the bet.”
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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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