Why the future of the circular economy may depend not only on business models, but on the coordination infrastructures that allow them to scale.
- Circular economy research has paid significant attention to circular business models, circular supply chains and circular ecosystems. This is important, but the ability of these models to scale also (if not, mostly) depends on system-level coordination infrastructures that often sit outside the firm.
- Circular systems generate higher transaction costs than linear systems because products and materials must move across multiple resource cycles, actors, ownership structures, and recovery pathways.
- Data and logistics are key components of the economic coordination infrastructures that make circular value visible, movable, trustworthy and accessible at scale.
- The key question becomes: how do we build the coordination infrastructures that make circular business models scalable in the first place?
The scaling debate in the circular economy
One of the central discussions in the circular economy concerns the scaling of circular business models (for recent works, see 1,2,3). Researchers, policymakers and practitioners ask why some models succeed while others remain niche. The predominant approach has been to identify the barriers and enablers that influence the growth of business models with a circular value proposition.
This debate stems from a legitimate concern. If the economy is to become more circular, circular business models must move beyond isolated pilots and niche markets. They must become economically viable alternatives capable of competing with, and eventually displacing, linear models.
Much of the literature has therefore focused on how firms can create, deliver and capture circular value. Drawing heavily from management studies and innovation theory, it has examined how companies can redesign products, develop new revenue models, strengthen customer relationships and build the capabilities required to operate in a circular economy.
This perspective is valuable. It helps explain how businesses can transition from linear to circular ways of operating. However, it also provides only a partial view of what may be required for circularity to scale.
From firms to ecosystems
The limitations of a purely firm-centred perspective have increasingly been recognised. A growing body of literature argues that circularity cannot be understood solely through individual firms but requires analysis at the level of supply chains, value networks and business ecosystems.
This shift is important because circular value is rarely created by a single actor. Repair, reuse, refurbishment, remanufacturing and recycling depend on interdependent networks of producers, users, repairers, refurbishers, recyclers, logistics providers and digital intermediaries. In this sense, value creation in a circular economy is fundamentally more distributed than in a traditional linear model.
However, an ecosystem perspective does not by itself solve the scaling problem. Knowing that actors need to collaborate is different from explaining how collaboration becomes reliable, repeatable and ultimately scalable. If circular value requires networks of actors, a further question emerges: what enables these networks to coordinate efficiently at scale?
To answer this question, we must turn to the economics of coordination.
Circularity as a coordination problem
In a linear economy, value is typically created, delivered, consumed and discarded. In a circular economy, value must be continuously identified, coordinated and recovered across multiple resource flows and lifecycle stages. This creates a fundamentally different coordination challenge. Products, components and materials often retain substantial value after their first use phase. The difficulty lies in making that value economically accessible.
The search and realisation of the highest value pathways for resources is rather complex due to one fundamental economic concept: transaction costs. In general terms, transaction costs are costs incurred when making an economic trade or participating in a market.
Circular systems tend to increase these costs because information regarding products quality, composition, conditions and availability are uncertain. Furthermore, connections between different loops of resource use require an articulated search & match mechanism, which often takes place across sectors and geographies.
Recent work applying transaction cost economics to circular systems argues that circular inter-organisational networks can increase information asymmetry, performance ambiguity and transaction costs.
The role played by transaction costs has major implications for the scaling of a circular economy. A circular business model may be technically feasible, with strong environmental and social benefits, and even economically attractive. If the costs of coordinating products, materials, information and actors remain too high, however, the model will struggle to compete with linear alternatives.
Transaction costs are ubiquitous in our economy, so linear businesses are also affected by it. However, the market had a fairly long time to undergo a process of trial-and-error to come up with mechanisms to diminish them. In the circular economy, on the other hand, the role of coordination infrastructures is underdeveloped.
The role of coordination infrastructures
To reduce transaction costs, coordination infrastructures are required. In this context, coordination infrastructures refer to the shared systems that make circular activity easier, cheaper and more reliable. They include digital systems such as product passports and marketplaces, logistical systems such as reverse logistics networks, quality systems (known as Quality Infrastructure) such as standards and certification schemes, and information systems such as material inventories and traceability platforms.
When we think of a circular economy, two types of infrastructures immediately come to mind: data and logistics.
Data reduces uncertainty, especially in the case of information asymmetries (which are the norm in circular economy transactions). Data provide visibility over product composition, ownership, condition, repair history, material content and recovery potential. Digital product passports, for instance, can become coordination infrastructures that keep products and materials visible across lifecycle stages. Data also provides the only reliable way to monitor the performance of a coordinated circular ecosystem. It can track success and inefficiencies enabling optimisation of the systems.
It is important to distinguish between data as a firm capability and data as coordination infrastructure. Much of the circular economy discussion focuses on how individual companies can improve their data capabilities to support circular business models. While this is important, the issue addressed here is different.
The value of data in circular systems often emerges not from what a single firm knows, but from what multiple actors can collectively access, share and use across product lifecycles. Data systems as coordination infrastructures do not create value by simply generating information, but by reducing information asymmetries between actors and enabling coordination across the system.
Logistics reduces the physical cost of coordination. It allows products and materials to move from where they are to where their value can be recovered. Reverse logistics is therefore one of the core infrastructures of circularity, as circular models may require complex reverse logistical routes (e.g transboundary movements) to reach economies of scale.
We may say that data makes circular value visible (information), while logistics make it movable (physical coordination). Their combination makes the allocation of products and materials to the most valuable pathway possible. However, they do not cover the full spectrum of coordination infrastructures required. As mentioned above, in fact, circular systems also depend on quality infrastructure, intermediaries, marketplaces, shared protocols and governance arrangements that allow actors to interact with trust.
From circular business models to circular coordination infrastructures
The debate on scaling circular business models has generated important insights into how firms can create, deliver and capture circular value. However, circularity does not scale through business models alone. While business models explain how circular value can be created, it is the coordination infrastructures that determine whether that value can be realised at scale.
Scaling occurs when interactions become easier, feedback loops become stronger and the system makes circular activity progressively more efficient and attractive. If data is missing, logistics are inefficient, standards are incompatible and actors cannot coordinate, even promising business models remain trapped in low-scale equilibria. If coordination costs fall, the same models can become self-reinforcing and spread across the economy. In this perspective, circularity should be understood as a complex adaptive system, not simply as a collection of individual firms.
The next step in the circular economy debate is therefore to complement the focus on business models, ecosystems and supply chains with a stronger understanding of the coordination infrastructures that make them scalable. This requires asking new questions. How is the data infrastructure provided? How are reverse logistics organised? How is quality verified and trust created? How are products and materials matched to recovery opportunities?
Once we understand scaling as a function of the system, the key question becomes: How do we build the coordination infrastructures that make circular business models scalable in the first place?
This is the question WRF will explore in a forthcoming report on the circular economy coordination problem. The report will examine what kinds of infrastructures are needed to reduce transaction costs in circular systems, how these infrastructures could emerge, and who should build and govern them.
Rather than focusing only on individual circular business models, it will look at the system-level conditions that allow those models to scale. Its aim is to stimulate a more strategic debate on how businesses, policymakers, public institutions and other actors can jointly build the coordination infrastructures required for a truly scalable circular economy.
Emanuele Di Francesco
World Resources Forum
Adrien Specker
World Resources Forum
Rebecca Suhner
World Resources Forum