The inverted pyramid: A neo-Ricardian view on the economy–environment relationship

Abstract

In ecological economics, natural resources – which may contribute only a small amount to GDP – are viewed as fundamental to the functioning of the economy. They are sometimes pictured as sitting at the base of an inverted pyramid, with the rest of the economy balanced on top of them. In this paper we show that when prices are set by markup, a standard heterodox assumption, then the “inverted pyramid” picture of the economy emerges naturally in a neo-Ricardian model. We demonstrate the use of the model with brief applications to biophysical economics. The paper is one of a growing number that use heterodox macroeconomics to address questions in ecological economics.