The market, based on private cost, is not a good guide to avoid externalities. Social costs originate in a classical economy and can act as a good guide alongside the private costs, which originate in the neoclassical economy. The private costs are based on the market mechanism of supply and demand rather than on the costs of production.
Actors in the market, such as producers and consumers, fail to get access to information on social costs.
The Best Practice Price (BPP), the sustainability metric, can fill this information gap. BPP is an approach that measures the prevention costs or the costs of the best practice rather than the damage our decisions provoke. The BPP sets Best Practices, calculates the price of those practices and compares them to the market prices. BPP calculates basic production factors and processes, and takes social, environmental and economic aspects into account.
Producers calculate their BPP based on these calculations and pass the social cost price on to the next in the value chain. The ratio MP to the BPP, called the BP-Ratio (BPR) makes it possible to compare different products.
Micro and macroeconomic performance indicators can be applied to the private costs, as well as to the societal costs. Producers and public entities can set goals using the BPR to measure the state of being in social, environmental and economic perspectives of a company or a country.
Consumers can set personal goals and sustainability becomes a tangible criterion in the everyday decision-making process. A full operational BBP fulfils all criteria for a sustainability indicator mentioned by (Hart, 1995) and the additional conditions mentioned in this paper. However, before this can happen, much research has to be done and many decisions have to be made.
As private costs are built up from the basic production factors in the value chain, BPP first determines the social price of the main production factors and other influencing inputs of production.
In this research, aimed at describe the theoretical framework for BPP, I have elaborated the production factors land, labour, and natural resources. The factors capital, energy, water, processes, waste, durability and emissions are also discussed. Although still limited, these are important sources of externalities of production, consumption and disposal of a product, they form the building blocks for the BPP sustainability metrics.