Economic analysis of Material-Product Chains

Abstract

Physical aspects of environmental problems are studied by natural and environmental scientists. However, their studies usually do not consider the economic and behavioural mechanisms underlying physical processes and material flows in the economy. In policy design, physical and technological possibilities need to be combined with economic aspects and behaviour. Traditionally, environmental economics has mainly focused on a partial analysis of environmental problems, resulting in a neglect for the interdependence of environmental problems caused by different economic stages. Often environmental economics focuses on external effects, without considering the material or physical dimension of problems. Economic processes are linked to — and even regarded as embedded in — physical processes and therefore a change in an economic process affects the physical process and vice versa. To include this physical dimension, material flow models may be combined with economic models. This allows the study of policy packages in which physical and economic aspects are considered simultaneously. This results in analyses that are economically consistent and physically feasible.