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From the Linear Economy to the Circular Economy: A Basic Model

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  • Peter Birch Sørensen

Abstract

This paper sets up a Ramsey model with natural resources to study the optimal recycling of polluting raw materials. Under plausible conditions it is optimal for the economy to go through an initial linear phase with no recycling followed by a circular phase where a fraction of materials is recycled to alleviate growing natural resource scarcity and environmental degradation. In the presence of a Pigouvian tax on nonrecycled materials a competitive market economy will ensure the optimal degree of recycling.

Suggested Citation

  • Peter Birch Sørensen, 2018. "From the Linear Economy to the Circular Economy: A Basic Model," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 74(1), pages 71-87, March.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201803)74:1_71:ftlett_2.0.tx_2-p
    DOI: 10.1628/001522118X15097191506475
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    More about this item

    Keywords

    circular economy; linear economy; optimal recycling; Hotelling rule; Pigouvian taxation;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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