Materials, Capital, Direct/Indirect Substitution, and Mass Balance Production Functions

Jeroen C. J. M. van den Bergh
1999 Land Economics  
The aim of this article is to provide a foundation for a correct and accurate analysis of the relationship between monetary values and physical dimensions in economic production processes that transform materials into products. This is relevant for a number of research topics, such as changes in materials use in production, the recycling of materials and products, "dematerialization" on a macro scale, and nonrenewable resource limits to growth. It is argued that the notions of "substitution"
more » ... "capital" are often cryptically used. In order to better understand and predict the changes that can occur in production, a distinction is proposed between direct and indirect substitution. Linked to this, a classification is offered of various types of substitutability and complementarity relationships between production factors. It is argued that the neoclassical production function may be consistent with mass balance, but is unsuitable to offer a detailed and accurate understanding of changes in production that influence materials use. For this purpose, a set of general formulations of production functions satisfying mass balance is presented, drawing upon the proposed classifications of substitution and production factors. 1
doi:10.2307/3147065 fatcat:zecrp6vjsbcp7eqenztjflz3jm