Circular competitive equilibrium

Intuitively, the circular economy is a nexus of resource sharing, reuse, input & process optimization, waste avoidance, and restorative or regenerative economic acts, creating resource loops in produc- tion and consumption. As the United Nations International Resource Panel estimates that virgin resource extraction and processing alone contribute to roughly half of all global greenhouse gas emissions, boosting circularity aspects seems imperative. As a social system, the circular economy is meant to minimize the use of pristine resources while not infringing on private ownership, decen- tralized organization, and general political, welfare, and social standards. Although the idea is colloquially ubiquitous and a staple of the profane discourse, it is unclear what the precise economic meaning and content of the concept is beyond casual banality. This research project seeks to determine to which extent ideas of circularity can be combined with the economically well-developed notions of decentralized competition and private ownership economies. For this purpose, we define resources in an economically universal way and augment the standard microeconomic toolkit of general equilibrium analysis by introducing production and consumption acts. Differing from the standard production and consumption models, these acts convert sets of resources into individual utility and profit but also affect other elements of the universal resource set by creating (unintended) by-products and waste. Individual optimization is then leading to what we call a competitive circular equilibrium. On this new methodological basis, we will introduce concepts of (imperfect) circularity, resource optimality, sustainability, and constrained efficiency and establish in which settings they are achievable. This will constitute the main part of this project. In the standard and our augmented general equilibrium models, households own all endowments, firms, production facilities, and resources. This is the framework used to derive the theoretical re- sults described above. But, obviously, many resources have properties of public goods, and mutual interdependencies determine non-negotiable inputs for others, transcending the private ownership model. Therefore, this project will provide the conceptual basis of circular competitive equilibrium in a model of fully private resources & goods and then attempt to develop required extensions to asymmetric information, public goods, externalities, and missing markets. The envisaged outcome of this research is that, once a suitable definition of circularity has been in- troduced into the existing general equilibrium theory, the field`s vast wealth of knowledge devel- oped in the last century can be brought to environmental fruition. Many central banks, governmental, and intergovernmental organizations use computable general equilibrium models to study policy-relevant properties of their respective economies. Extending these models` theoretical framework to address circularity could hugely benefit society.