Limits to substitution and irreversibility in production and consumption: A neoclassical interpretation of ecological economics

Abstract There are many methodological approaches within ecological economics. One of the principal modes of analysis is a modified version of the ‘standard neoclassical model’. This paper examines the parallels which emerge between the ideas of some ecological economists concerning production and the ideas of others concerning consumption, when these ideas are interpreted in the neoclassical paradigm. It is well known that ecological economics is characterized by arguments concerning limits to substitution between inputs (energy, natural capital, etc., vs. manufactured capital, labor, etc.) in production and the implications these have for sustainability. However, various authors have also expressed concerns regarding limits to substitution in consumption, either between environmental assets and other goods or between basic needs commodities and other goods. Though the specific reasons for non-substitution are different in the production and consumption cases, the underlying theme is that individual commodities and other inputs have unique physical or other properties which make them poor substitutes. Ideas about irreversibility in production and economic development are also prominent in ecological economics. Likewise, many authors have argued for similar irreversibilities in consumption behavior. In analogy to the term technological change, I coin the term “preferential change” to describe these phenomena. The linking themes in this case are that the economy-environment system is evolutionary in character and that external effects—intended and unintended consequences of actions or processes imposed on other parties or resources—are all pervasive.