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The Basic Environmental Economics of The Circular Economy

Peter Birch Sørensen
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Peter Birch Sørensen: Department of Economics, University of Copenhagen

EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper sets up a Ramsey model with exhaustible natural resources to study the optimal recycling of polluting raw materials and household waste products. During the process of economic development it is optimal for the economy to go through an initial “linear” phase with no recycling followed by a “circular” phase where some materials and waste products are recycled to alleviate growing natural resource scarcity and environmental degradation. Ensuring the optimal degree of recycling in a market economy requires a Pigouvian tax on non-recycled raw materials combined with a subsidy to recycling of household waste and a tax on man-made wealth to internalize the environmental cost of capital accumulation.

Keywords: Circular economy; linear economy; optimal recycling; Hotelling rule; Pigouvian taxation; Environmental Kuznets Curve (search for similar items in EconPapers)
JEL-codes: Q53 Q58 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
Date: 2017-11
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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:17-04

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