Cogoy, Mario
Working Paper
A Model of Eco-Efficiency and Recycling
Economics Discussion Papers, No. 2009-9
Provided in Cooperation with:
Kiel Institute for the World Economy – Leibniz Center for Research on Global Economic
Challenges
Suggested Citation: Cogoy, Mario (2009) : A Model of Eco-Efficiency and Recycling, Economics
Discussion Papers, No. 2009-9, Kiel Institute for the World Economy (IfW), Kiel
This Version is available at:
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Discussion Paper
Nr. 2009-9 | January 13, 2009 | http://www.economics-ejournal.org/economics/discussionpapers/2009-9
A Model of Eco-Efficiency and Recycling
Mario Cogoy
University of Trieste, Italy
Abstract
This paper presents the model of an economy subject to the mass conservation
principle. The economic system is related to the environment by a flow of virgin
materials into the economy, and by the diffusion of waste into the environment. Eco-
efficiency contributes to reducing material waste in all processes. Recycling can reduce
the diffusion of waste by feeding it back into the economy. Human capital enhances
productivity, eco-efficiency and the quality of all kinds of outputs. Recycling and
human capital formation use productive factors and are rooted therefore, as all other
activities, in the material basis of the economy. The paper studies an optimal material
state of society.
JEL: D90, O30, O41, Q00
Keywords: Eco-Efficiency, Recycling, Materials Balances, Material Flows, Human
Capital
Correspondence:
Mario Cogoy, Department of Economics and Statistics - University of Trieste, Piazzale Europa
1 - 34127 - Trieste – Italy, email:
mario.cogoy@econ.units.it
© Author(s) 2009. Licensed under a Creative Commons License - Attribution-NonCommercial 2.0 Germany
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1. INTRODUCTION
The current anthropogenic pressure on the natural environment calls for effective
control of the material dimensions of human activities in advanced industrial societies
(van den Bergh 1996; Adriaanse et al. 1997; Fischer-Kowalski 1998; Fischer-Kowalski
and Hüttler 1998; Ayres 1999b; Bouman et al. 2000). Different possible technological
responses to the task of controlling anthropogenic material flows have been discussed in
the literature as e.g.: dematerialisation, eco-efficiency, recycling, industrial ecology and
industrial metabolism.
Although the analysis of physical constraints on economic activities (Ayres 1998,
1999a; Cleveland and Ruth 1997; Ruth 1993, 1999) is a much debated issue, the
development of models combining physical insights with specific tools of economic
analysis still remains a very fragmentary field of research, since existing economic-
physical models make very different assumptions and focus on very different aspects of
the complex interaction between economic and physical analysis.
Smith (1972) applies the law of mass conservation to recycling in a model without
physical capital. He develops economic conditions for complete or zero recycling. Van
den Bergh (1996) presents an experimental model, based on materials balances. Waste
can be emitted, recycled or stored. Environmental quality depends on the stocks of
renewables and on the stock of pollutants. Simulations are performed with exogenous
scenarios. Di Vita (1997) studies the effects of recycling of imported raw materials on
the balance of payments and on employment in an open economy. Huhtala (1999)
investigates recycling as an alternative to resource extraction. Recycling reduces
pollution, but labour is the only input and physical capital does not come into the
picture. Nakamura (1999) applies an input-output approach to the study of waste
recycling in a static setting without technical progress. Di Vita (2001) focuses on the
effects of recycling on the rate of growth. His model includes technical progress, which
is endogenously generated by research. Welfare is negatively affected by the dimension
of the waste stock, but not by the scale of economic activities. Hosoda (2001) applies
the corn-guano model of the post-Sraffian school (Bidard and Erreygers 2001) to an
analysis of recycling. The residuals of a first process are used as inputs to a second
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process. In this way, waste is completely absorbed and unlimited growth is possible,
even after exhaustion of landfills. Eichner and Pethig (2001) present a labour-only
model based on mass conservation with recycling activities and waste treatment before
disposal. They investigate waste markets and market failures in the waste sector.
Highfill and Mc Asey (2001) study recycling as an alternative to landfilling in the
framework of a growing economy. Economic growth is exogenous and no
interrelationship between physical capital, recycling and technical progress is therefore
addressed. Eichner (2005) applies a labour-only partial equilibrium model to the
analysis of imperfectly competitive markets in the recycling sector. André and Cerdá
(2006) analyse the intertemporal shift in the proportion between recyclable and non-
recyclable production inputs in a dynamic economy, not constrained by the mass
conservation principle and without capital accumulation and technical progress. An
overview of applied materials flows models is given in Bouman et al. (2000).
The present paper attempts to study material flows in an economic model, constrained
by the mass conservation principle, and in which technology is determined by human
capital. The flows considered are the flows between the natural environment and the
economy and the material flows within the economy. The stocks are: the stock of
accumulated emissions and the stock of materials temporarily frozen within the
economy in the shape of physical capital. Physical capital occupies natural spaces and
determines the material scale of the economy. If a recycling sector exists, materials are
re-directed from the flow of waste back into the economy as a second kind of material
inputs, which is added to the flow of virgin materials, directly extracted from the
environment.
There is some ambiguity in the literature on the nature of this second kind of material
inputs (Converse 1997; Ayres 1999a). Can waste be recycled after diffusion into the
environment, or is a previous sequestration of waste before diffusion necessary for
recycling activities? If diffused waste is the source of recycling, the difference between
virgin materials and recycled materials disappears, since both would have to be
extracted from the environment. I shall adopt the view of a combined sequestration-
recycling activity, because I assume that capturing waste materials before dissipation is
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economically more convenient than retrieving materials after dissipation. In this case,
virgin materials and recycled materials are different inputs, since the first originate in
nature, while the second originate from sequestration activities. This implies, that
recycling is a two-stage process: sequestration comes first and recycling in the stricter
sense follows, when materials are extracted, or ‘mined’ out of sequestered materials and
transformed into inputs to final output.
The material structure of the economy is determined by knowledge and technology, and
the level of society’s technological capabilities is measured in this paper by human
capital. I shall consider three channels through which human capital influences the
material basis of human activities.
First of all, human capital contributes to an increase in productivity. This role of human
capital has been extensively investigated in economic theory (Lucas 1988; Romer 1989)
and will also be considered here. Productivity gains imply however a rising throughput
of materials, which has to be accounted for, both backwards, as an increase in material
requirements, and also forwards, as a growing production of waste.
A second effect of knowledge is to contribute to a more efficient use of materials in the
economic process. Human capital can contribute to reduce material losses in the process
of transformation of material inputs into useful outputs (Reijnders 1998; Schmidt-Bleek
1993, 1997; Weizsäcker et al. 1997). In this way, human capital enhances eco-
efficiency and reduces the environmental impacts of economic activities.
A third effect is on consumption. Consumption is not only a material, but also a
cultural, aesthetic and social process and is therefore fundamentally influenced by the
general level of accumulated social knowledge (Cogoy 1999).
In this paper I shall study the optimal material state of the economy in stock-flow
equilibrium. This means, that the social planner chooses the optimal level of stocks,
human capital included. The optimal level of knowledge is not infinite, since human
capital requires a material infrastructure supporting its operations, and is therefore
constrained by environmental considerations, as are all physical stocks. For this reason,
the optimal level of knowledge is endogenous in this paper. The description of a
