The Interactions Between Production and Ecological Networks
I propose a framework to study the intricate interactions between the economy and the environment using an n−sectors endogenous production network and an m−resources ecological network. Markets are contestable, and firms adapt more rapidly than ecosystems. I show that supply chain spillovers strongly affect the nature of the interactions between natural resources, leading to economic and ecological instability. I characterize the optimal tax and show that the (efficient) resources’ values can be expressed as an explicit function of the production and ecological networks. I complement the theoretical results with numerical simulations, calibrated using a state-of-the-art ecological network model.