Discussion paper

DP17712 Can the market economy deal with sustainability?

The central question in this paper is whether a market economy can theoretically and empirically deal with sustainability. A system analysis of the current neoclassical theory shows that the system components (goal function, interaction mechanisms, actors and outcomes) are predominantly defined in terms of economic growth and facilitated by market exchange. This fosters (over)production and consumption of private goods, crowding out public goods and preservation of the commons. The one size fits all ‘economic mechanism design’ cannot deliver societal outcomes regarding sustainability.

The explicit recognition that an economy has different domains (ecological, social, economic) broadens the options for incorporating sustainability within the economic system. This richer framework allows us to analyse the economic problem at hand: an efficient economic system in an inclusive society within biophysical boundaries. We show that the alternative for market economics does not only have to be government intervention but can also include private forms of collective decision-making


Schoenmaker, D and H Stegeman (2022), ‘DP17712 Can the market economy deal with sustainability?‘, CEPR Discussion Paper No. 17712. CEPR Press, Paris & London. https://cepr.org/publications/dp17712