ipopba/AdobestockThe circular economy concept aims to use resources sustainably as a way to reduce harm to the environment. Although the notion of the circular economy is well established and frequently invoked in political discourse, its true economic significance and precise definition remain unclear above and beyond the familiar, often superficial statements. Paul Schweinzer (University of Klagenfurt) and Zaifu Yang (University of York) intend to change this: In the FWF-funded project “Circular Competitive Equilibrium”, they are seeking ways to combine the idea of a circular economy with the well-developed economic concepts of decentralized competition and private property.

Many central banks, governmen­tal, and intergovernmental organisations use computable general equilibrium models to study and predict pol­icy-relevant properties of their respective economies. “To date, these models have not been able to adequately reflect the principles of the circular economy. That is why we want to expand the theoretical framework of these models so that they can also be used to draw conclusions about the effects of the circular economy,’ says Paul Schweinzer, principal investigator of the three-year project.
The challenges are many and varied: General equilibrium models typically focus on the flow of goods and services. Waste streams or by-products are rarely considered, despite being essential to a circular economy. Moreover, the equilibrium models are based on the concepts of decentralised competition and private property, whereas many resources, such as water or air, feature public or common ownership structures.
“In our approach, we define resources in an economically universal way and augment the standard microeconomic toolkit of general equilibrium analysis by defining and incorporating so-called production and consumption acts as core components. 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 then leads 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”, Paul Schweinzer goes on to explain the essence of the research project.
The aim of the project is to integrate a useful definition of circular economy into the existing general equilibrium theory to utilise the extensive knowledge in the field, developed over the last century, for an ecological implementation.
The ‘Circular Competitive Equilibrium’ project is set to begin in October 2025 and is funded by the Austrian Science Fund (FWF).
Der Beitrag Integrating the circular economy into existing economic models erschien zuerst auf University of Klagenfurt.