Ambivalent Joint Production and the Natural Environment

Transcription

1 Ambivalent Joint Production and the Natural Environment

2 Contributions to Economics Christoph M. Schneider Research and Development Management: From the Soviet Union to Russia ISBN Lars Olof Persson/Ulf Wiberg Microregional Fragmentation ISBN Emesto Felli/Furio C. RosatiJ Giovanni Tria (Eds.) The Service Sector: Productivity and Growth ISBN X Giovanni Gaiizzi/ Luciano Venturini (Eds.) Economics of Innovation: The Case of Food Industry ISBN X David T. Johnson Poverty, Inequality and Social Welfare in Australia ISBN X Rongxing Guo Border-Regional Economics ISBN Oliver Fratzscher The Political Economy of Trade Integration ISBN Ulrich Landwehr Industrial Mobility and Public Policy ISBN Amold PicotlEkkehard Schlicht (Eds.) Firms, Markets, and Contracts Corr. 2nd printing 1997 ISBN Thorsten Wichmann Agricultural Technical Progress and the Development of a Dual Economy ISBN Ulrich Woitek Business Cycles ISBN Michael Carlberg International Economic Growth ISBN Massimo Filippini Elements of the Swiss Market for Electricity ISBN Frank HosterlHeinz Welsch/ Christoph Bohringer CO 2 Abatement and Economic Strnctural Change in the European Internal Market ISBN Christian M. Hafner Nonlinear Time Series Analysis with Applications to Foreign Exchange Rate VolatiJity ISBN X Sardar M.N. Islam Mathematical Economics of Multi-Level Optimisation ISBN Sven-Morten Mentzel Real Exchange Rate Movements ISBN Lei DelsenlEelke de Jong (Eds.) The German and Dutch Economies ISBN Mark Weder Business Cycle Models with Indeterminacy ISBN Tor Rjildseth (Ed.) Models for Multispecies Management ISBN Michael Carlberg Intertemporal Macroeconomics ISBN Sabine Spangenberg The Institutionalised Transformation of the East German Economy ISBN Hagen Bobzin Indivisibilities ISBN Helmut Wagner (Ed.) Current Issues in Monetary Economics ISBN cootioued 00 page 324

3 Stefan Baumgărtner Alllbivalent J oint Production and the Natural Environtnent An Economic and Thermodynamic Analysis With 25 Figures and 11 Tables Springer-Verlag Berlin Heidelberg GmbH

4 Series Editors Wemer A. Miiller Martina Bihn Author Dr. Stefan Baumgărtner Department of Economics University of Heidelberg Grabengasse Heidelberg Germany ISSN ISBN Die Deutsche Bibliothek - CIP-Einheitsaufnahme Baumgiirtner, Stefan: Ambivalent joint production and the natural environment: an economic and thermodynamic analysis; with Il tables I Stefan Baumgiirtner. - Heidelberg; New York: Physica VerI., 2000 (Contributions to econom ies) ISBN ISBN (ebook) DOI / This work is subject to copyright. AII rights are reserved, whether the whole or part of the material is concemed, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its cultent version, and permission for use must always be obtained from Physica-Verlag. Violations are liable for prosecution under the German Copyright Law. Springer-Verlag Bedin Heidelberg 2000 Originally published by Physica-Vedag Heidelberg New York in 2000 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Softcover-Design: Erich Kirchner, Heidelberg SPIN / I O - Printed on acid-free paper

5 Preface This text is the revised version of my doctoral dissertation which has been accepted by the Department of Economics, University of Heidelberg in June It is my great pleasure to thank, above all, Malte Faber for encouraging support of this project. His stimulating ideas acted as a rich source of inspiration for me. Till Requate has made extensive comments on earlier drafts. They have considerably improved the final version. Parts of this work are based on research that I have undertaken together with Malte Faber, Frank J6st, John L.R. Proops and Johannes Schiller. Working together with them was a great opportunity, from which I took a lot of benefit. Thanks to all of them for being patient with me. The different ideas, concepts and models as well as their presentation within this work have greatly gained from comments, critical discussions and constructive suggestions from many people. Among those whose comments have left a noticeable impact on this work are Shmuel Amir, Harald Dyckhoff, Manuel Frondel, Stephan Hartmann, J6rg Hiifner, Bernd Klauer, Reiner Kiimmel, Heinz D. Kurz, Andreas Lange, Markus Lehmann, Reiner Manstetten, Katalin Martinas, Georg Miiller-Fiirstenberger, Jiirg Niehans, Hans G. Nutzinger, Charles Perrings, Dan Phaneuf, Armin Schmutzler, Wolfram Unold, Wolfgang Weidlich and Ulrich Witt. Their contribution is gratefully acknowledged. Finally, I am very much indebted to Mark Wenig, Mark Ewald and Martin Quaas for their assistance with countless problems of computer hardware and software. Heidelberg, December 1999 Stefan Baumgartner

6 Brief contents Part I Part II Part III 1 Introduction The Phenomenon of Joint Production 2 Joint production and the natural environment 3 Thermodynamics 4 All production is joint production The Analysis of Joint Production in the History of Economic Thought 5 The classical position and its early critics 94 6 The abandonment of classical theory Neoclassical theory from partial to general equilibrium analysis The role of joint production for the construction of economic theory 143 The Economics of Ambivalent Joint Production 9 The concept of joint production 10 Ambivalence of joint products 11 Joint products and irreversibility 12 Non-convexity of the production set 13 Ambivalent joint production: Putting the issues in perspective References

7 Contents Preface... v 1 Introduction The issue under study Joint production Joint products and the natural environment Ambivalence of joint products Dynamic economy-environment interactions The state of knowledge and ignorance Scope and method of analysis Defining the basic terms Scope of analysis Aim of this work Environmental Economics and Ecological Economics An interdisciplinary approach Analytical features Preview of the argument I The Phenomenon of Joint Production 21 2 Joint production and the natural environment The macro-dimension of joint production The cogeneration of electricity and heat: Ambivalence of joint products The impact of joint products over time Flow pollution vs. stock pollution The emission of carbon dioxide, methane and nitrous oxide: The anthropogenic greenhouse effect The emission of sulfur dioxide: Acid rain The impact of joint products over time: Conclusion Sulfuric acid: Joint products as the origin of structural change Conclusion 43 3 Thermodynamics 3.1 Phenomenological thermodynamics Thermodynamic systems Conservation of energy Conservation of matter

8 x Contents Degradation of energy Statistical mechanics Boltzmann's notion of entropy Phenomenological versus statistical view Time-irreversibility Reversible time Time-irreversibility in isolated systems: heat death Time-irreversibility in open systems: complexity through self-organization Thermodynamics and time-irreversibility Conclusion 64 4 All production is joint production The fundamental factors of production The thermodynamic view of production Production as a transformation of energy and matter First and Second Law constraints A 'toy model' of industrial production processes Joint production as a consequence of the First Law Joint production as a consequence of the Second Law Some comments on the generality of the employed toy model Implications and applications of the model Relationship among the joint outputs Relationship among the inputs Substitutability vs. complementarity of inputs Relationship between inputs and outputs and thermodynamic limits to technical progress Conclusion 86 II The Analysis of Joint Production in the History of Economic Thought 89 5 The classical position and its early critics Adam Smith: The case of joint production requires special patterns of explanation John Stuart Mill: Demand and supply Conclusion The abandonment of classical theory Johann Heinrich von Thiinen: Ambivalent joint production Karl Marx: Joint products as waste William Stanley Jevons: Marginal utility explains the demand for joint outputs 107

9 Contents xi 6.4 Conclusion Neoclassical theory from partial to general equilibrium analysis Alfred Marshall: Substitution in supply Heinrich von Stackelberg: Analogies to the case of single production John von Neumann: Duality of process intensities and prices Arrow/Debreu: The production set Welfare analysis: Harmful joint outputs Conclusion 140 Appendix A Von Neumann's model of linear production The role of joint production for the construction of economic theory Summary of chapters 5 to Critical appraisal Empirical relevance Analytical treatment Interpretation Two different strategies for the construction of economic theory The structuralist research program Conclusion 153 III The Economics of Ambivalent Joint Production The concept ofjoint production The notion of joint production in the literature Joint production in the economic literature Joint production in the business administration literature A formal definition of joint production Definition Properties of the definition Subjective elements in the description of production The observer's interest: Is really all production joint production? The valuation by economic agents: Why is the production process carried out?

10 xii Contents Conceptual separation between the description of production and the valuation of outputs by economic agents Aspects of joint production Fixed and flexible joint production Ambivalent joint production Conclusion Ambivalence ofjoint products A model with joint externalities Specification of the model The transformation curve Optimal allocation and shadow prices Ambivalence of the intermediate product (I) Solution of the model Scenario 1: No emissions Scenario 2: Final emissions Scenario 3: Joint emissions Summary of model results Optimal 0: Ambivalence of the intermediate product (II) 214 loa Environmental policy with joint emissions Regulation under complete knowledge Incomplete knowledge and learning by doing Conclusion What determines the value of joint outputs? The implication for environmental policy The implication for economic modeling 221 Appendix loa Determining equation for 0: lob Solution for the three scenarios 223 lob.l Solution in scenario lob.2 Solution in scenario lob.3 Solution in scenario Joint products and irreversibility Notions of irreversibility in production theory Thermodynamic irreversibility Koopmans' notion of irreversibility Debreu's notion of irreversibility Dated goods vs. complete representations Production and capital accumulation Reversible capital theory Joint products and irreversible capital accumulation 248

11 Contents xiii 11.3 Economic and thermodynamic views on irreversibility Conclusion Non-convexity of the production set Detrimental joint products and negative externalities Competing uses of the environment A simple model of a two-sector-economy Baumol type externalities The argument of Baumol and Bradford Formal analysis of the transformation curve Generalization to n production processes Different types of externalities Different types of negative externality Two examples Different types of non-convexity Negative externalities and non-convexities: summary The consequences of a non-convex production possibility set Non-convexity at the level of individual firms and at the level of the economy Existence of a general competitive equilibrium First welfare theorem Second welfare theorem Second order conditions: Welfare maximum or minimum? Conclusion 287 Appendix A Properties of the inverse production functions Ambivalent joint production: Putting the issues in perspective 290 References 295 List of Figures 322 List of Tables 323