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A frontier functions approach to optimal scales of sustainable production

Published online by Cambridge University Press:  13 February 2014

Viet-Ngu Hoang
Viet-Ngu Hoang*
Affiliation:
Queensland University of Technology, Business School, Room Z829, Block Z, Gardens Point Campus, Brisbane, Australia; and the TERRECO-IRTG program. Phone: +61 7 313 84325. Fax: +61 7 3138 1500. E-mail: vincent.hoang@qut.edu.au
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Abstract

This paper translates the concepts of sustainable production to three dimensions of economic, environmental and ecological sustainability to analyze optimal production scales by solving optimizing problems. Economic optimization seeks input-output combinations to maximize profits. Environmental optimization searches for input-output combinations that minimize the polluting effects of materials balance on the surrounding environment. Ecological optimization looks for input-output combinations that minimize the cumulative destruction of the entire ecosystem. Using an aggregate space, the framework illustrates that these optimal scales are often not identical because markets fail to account for all negative externalities. Profit-maximizing firms normally operate at the scales which are larger than optimal scales from the viewpoints of environmental and ecological sustainability; hence policy interventions are favoured. The framework offers a useful tool for efficiency studies and policy implication analysis. The paper provides an empirical investigation using a data set of rice farms in South Korea.

Type
Research Article
Information
Environment and Development Economics , Volume 19 , Issue 5 , October 2014 , pp. 566 - 584
Copyright
Copyright © Cambridge University Press 2014 

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