From Challenge to Balance: The Transition from Traditional to Sustainable Economics

Abstract

The subject of this master thesis is the concept of a circular economy as a sustainable economic model, and how it fits traditional economics developed in the 19th century. The subject is discussed with a nuanced and holistic approach from an economics perspective, attempting to describe why a sustainable economic model is necessary, and how a successful transition may find place. The thesis is meant as a contribution to the existing research on the field. The traditional linear economic model is still the dominating model today. It has been the foundation for substantial wealth-creation over the last centuries, however it seems to fail in incorporating environmental concerns. The thesis explores how rethinking and reconstructing our economic models from the linear approach to a circular economy can in fact maintain value creation and economic growth, while minimizing the climate footprint left on our planet. The circular economy bears the potential to increase the duration and quality of goods and services produced as well as reduce residual waste, by incorporating the environment and planetary boundaries as constraints. The earth is a closed loop system with limited resources and resilience, and our economic models and behavior should reflect this. Google Scholar is utilized to establish a foundation of existing literature on circular economy and supplements with relevant theory on welfare economics and network effects. Economic theory dictates that scarce resources are to be utilized at full capacity, maximizing the output from these scarce resources. However, the established linear economic model proves the opposite. Resources are not utilized to their full potential, accommodating for collective mass production and overconsumption. The thesis proposes how identifying categorical barriers obstructing the transition to a circular economy and strategically use the quantified barriers as a tool in policy-setting, can in fact initiate a constructive transition toward a circular economy. Theory on welfare economics and network effects are utilized to illustrate how deflating the barriers through legislation can enable the market forces to stabilize the market in a circular economy, by establishing strategic incentives to induce the successful transition toward the sustainable economic model – the circular economy.