Resource productivity in theories of cost-share induced technological change
Updated: Oct 24, 2018
Stockholm Environment Institute
The prospects for long-term sustainability depend on whether, and how much, we can absolutely decouple economic output from total energy and material throughput. While relative decoupling has occurred—that is, resource use has grown less quickly than the economy—absolute decoupling has not, raising the question whether it is possible. This paper proposes a novel explanation for why decoupling has not happened historically, drawing on a recent theory of cost-share induced productivity change and an extension of post-Keynesian pricing theory to natural resources. Cost-share induced productivity change and pricing behavior set up two halves of a dynamic, which we explore from a post-Keynesian perspective. In this dynamic, resource costs as a share of GDP move towards a stable level, at which the growth rate of resource productivity is typically less than the growth rate of GDP. This provides a parsimonious explanation for the prevalence of relative over absolute decoupling. The paper then presents some illustrative applications of the theory.
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