Exploring production-theoretical insights for economic-ecological trade-off analysis

Abstract

This paper provides a framework for analyzing economic-ecological trade-off measures at firm level. This must allow for distinguishing different stages in the trade-off curve. Based on a literature review, various economic-ecological trade-off paradigms and theories are combined, and integrated and additive measures are distinguished. While integrated measures address inputoutput transformation and the relation with negative externalities and profit generation, additive measures aim at pollution abatement after externalities have already been generated. Since additive measures are costly, they always imply a negative trade-off, improving ecological performance and diminishing economic performance. Some integrated measures imply a positive trade-off, improving both economic and ecological performance. In order to analyze trade-off measures, production-theoretical foundations of input-output transformation and the link with economic and ecological performance are elaborated. Production, profit and emission functions that are theoretically consistent are constructed, taking into account the materials balance principle for pollution. These theoretical underpinnings serve as basis for establishing a framework for trade-off analysis. The framework shows that not all measures have straightforward trade-off implications. Trade-off implications of some integrated measures may be positive or negative, depending on the input-output technology of the firm, the combination of input(s) and output(s) that the firm is currently using and the prices and ecological coefficients of input(s) and output(s).