An Input-Output Approach for the Efficient Design of Sustainable Goods and Services

We propose a prescriptive framework to support environmentally conscious decision making in the design of goods and services. The framework bridges recent applications of input-output analysis to conduct environmental life cycle assessment (LCA), with seminal work in production economics. In the latter, product design, production planning, and scheduling problems are frequently formulated as input-output models with substitution, and subsequently analyzed and solved as linear programs. The use of linear programming provides an appealing theory and computational framework to support decision making, as well as to conduct sensitivity analysis.

In this paper, we explore the benefits of integrating LCA within a linear programming (LP) framework and present a case study where we consider a hypothetical advertiser located in the Chicago Metropolitan Area, who wishes to allocate a predetermined budget to place ads in either the print or online versions of a high-circulation, local newspaper. We formulate the problem of finding an advertising strategy that minimizes global warming potential (GWP), subject to demand and budget constraints. We then solve the problem and evaluate the optimal strategy in terms of discharges of component greenhouse gases, and in terms of requirements imposed on various energy sources. We also analyze the sensitivity of the optimal advertising strategy (and associated global warming potential) to perturbations in the model parameters and constraints.

Results and discussion
By embedding LCA within an LP formulation, we are able to examine the relationships between economic and environmental factors inherent within decisions to use specific products or services. Specifically, the advertiser finds that each strategy contains tradeoffs among and between environmental and monetary costs. A disaggregate comparison of greenhouse gas release and energy consumption among strategies highlights the variation between these factors and the potential dangers of aggregation. Sensitivity analysis gives us marginal costs (per dollar and per person) of GWP in the optimal solution. These and other managerial insights presented highlight the complex tradeoffs necessary for environmentally conscious, sustainable decision making.