Working Paper: CEPR ID: DP17712
Authors: Dirk Schoenmaker; Hans Stegeman
Abstract: The central question in this paper is whether a market economy can theoretically and empirically deal with sustainability. A system analysis of the current neoclassical theory shows that the system components (goal function, interaction mechanisms, actors and outcomes) are predominantly defined in terms of economic growth and facilitated by market exchange. This fosters (over)production and consumption of private goods, crowding out public goods and preservation of the commons. The one size fits all ‘economic mechanism design’ cannot deliver societal outcomes regarding sustainability.The explicit recognition that an economy has different domains (ecological, social, economic) broadens the options for incorporating sustainability within the economic system. This richer framework allows us to analyse the economic problem at hand: an efficient economic system in an inclusive society within biophysical boundaries. We show that the alternative for market economics does not only have to be government intervention but can also include private forms of collective decision-making
Keywords: inequality; social inclusion; environment; wellbeing
JEL Codes: E61; H41; I31; O11; O43; O44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current neoclassical economic framework (E13) | overproduction and consumption of private goods (H42) |
| overproduction and consumption of private goods (H42) | crowding out of public goods (H40) |
| overproduction and consumption of private goods (H42) | harming the commons (P14) |
| failure of market economics to deliver sustainable outcomes (P42) | lack of recognition of interdependent domains of ecology, society, and economy (Q57) |
| governance framework incorporating ecological, social, and economic domains (Q56) | sustainable outcomes (Q01) |
| current market mechanisms (D47) | inadequate for achieving sustainability (Q01) |
| government intervention alone (L59) | sustainable outcomes (Q01) |
| private collective decision-making (D70) | sustainable outcomes (Q01) |