Optimal Resource Allocation at the Blue Economy Type of Firms

This article attempts to model the optimal resource allocation and the definition of firm’s internal transfer prices of aiming to minimise their environmental impact. The author defines the concept of zero waste principle, also referred to as the blue economy principle, with the help of the linear activity analysis model. She demonstrates that if the firm cannot operate the technology which applies the zerowaste principle, then a firm can realise profit only by polluting the environment. She also shows how the internal transfer price of a by-product can be quantified and can take both a negative or positive value as well; thereby, promoting an open market driven by the objective of the blue economy. Finally, she also demonstrates that shadow prices relating to emission constraints may serve as the basis for environmental penalties motivating firms to restrain from environmental pollution.