Towards a more appropriate method for determining the optimal scale of production units

This paper asserts that beyond certain scale thresholds several factors contribute to diseconomies of scale for individual production units, particularly with regard to the costs of non-renewable resource consumption. Economic instruments such as environmental taxes may induce a shift towards marginally more sustainable production levels for a plant of a given size, but they are not designed to affect the plant size itself. This paper suggests a methodology for determining optimal scale more appropriately. The results show that establishing the scale of production units at a social optimum rather than a private one implies a significant decrease in scale for most economic activities. Downscaling also has significant economic welfare and environmental advantages. Incentives linked to the factors which determine the social optimum are put forward as measures for inducing a shift towards an optimal size for production units.