Theory of the Firm

Authored by: Peter E. Earl

Routledge Handbook of Ecological Economics

Print publication date:  April  2017
Online publication date:  April  2017

Print ISBN: 9781138931510
eBook ISBN: 9781315679747
Adobe ISBN: 9781317395102


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Ecological economists need to have knowledge of the theory of the firm because damage to ecosystems is largely the result of production processes of firms or due to the consumption of the products that firms choose to supply to their customers. Policies aimed at limiting or overcoming ecosystem damage may fail if firms do not respond to incentives in the ways the policy designers expect. For example, firms may fail to change their behaviour in response to economic incentives (e.g., tax or subsidy) contrary to mainstream economic expectations. If the theory correctly predicts such behaviour it will inspire the search for alternative policies such as direct regulation. A contention of this chapter is that a more realistic understanding of the firm is indeed necessary.

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