The Concept of Utility

Utility theory forms the basis for understanding how individuals rank and derive value from different goods and services. The concept is fundamental to understanding decision-making processes. In economic terms, it represents the value or usefulness that a particular product or service provides to a consumer. The idea of utility has been essential in explaining how market participants allocate their resources to achieve the highest level of satisfaction. However, in the discourse on value the emphasis has often been on its creation rather than its destruction. The fact that individuals can maximize utility by maximizing benefits as well as by preventing harm has been overlooked.

Benefit & Harm

Utility measures the degree to which a product or service can affect human needs or desires, encompassing benefit and harm. In this context, benefits are the improvements, or positive impacts, and harm is the deterioration, or negative impacts. This approach categorizes objects into goods (or assets) and liabilities, based on their capacity to satisfy or accentuate needs or desires. However, this perspective simplifies the complex nature of how things affect our lives. Rather than viewing items solely as beneficial or harmful, it's essential to recognize that they embody both aspects simultaneously. This understanding challenges the traditional binary perception, revealing that the true utility of an object lies in the balance between its capacity to improve or worsen human conditions.

Potential & Risks

Utility is forward-looking, including the positive and negative effects something may have in the future. Its current perception depends on what can happen rather than what has effectively happened. Economic exchanges implicitly involve considerations on things that are likely to happen.

While potential refers to the capacity to bring benefits, risk pertains to the likelihood of causing harm. When an item's potential outweighs its risks, it has positive utility, making it an asset. Conversely, if risks outweigh potential, it has negative utility, classifying it as a liability. Potential and risks are not immediate effects: they represent possibilities. Benefits are realized when assets are used, and harm materializes when risks translate into actual harm.

Utility = Potential - Risks

It's crucial to acknowledge that waste may have potential; rather, it's defined by a situation where its risks exceed its potential benefits. This principle applies universally, with the opposite also holding true as well.

Potential of Benefit	Risk of Harm
A packaged snack can be consumed to provide enjoyment, nourishment and energy. Its potential for benefit lies in its ability to satisfy hunger and provide nutritional value. This potential is realized when the snack is actually consumed and provides the intended energy and satisfaction to the consumer, but the snack has positive utility before it is consumed.	Radioactive waste can harm people and the environment through its long-term radioactive emissions. The risk of harm is not immediate but manifests over time, especially if not managed and contained properly. Radioactive waste has negative utility, not because it has harmed people or the environment, but because it poses a risk, given its hazardous properties.

Utility Categories

All materials, at any given moment, can be categorized into three distinct classes based on their utility:

Category	Utility	Description	Examples
Resources	Utility > 0
Potential > Risks	These items have positive utility, where the potential benefits outweigh risks. They contribute positively to human needs or desires.	Gold has significant positive utility due to its wide-ranging applications in industries like electronics, jewelry, and as a financial asset. Its potential benefits greatly outweigh any risks, making it a clear example of a resource.
Waste	Utility < 0
Potential < Risks	Items with negative utility, where risks of harm outweigh potential benefits. If left unmanaged, they can destroy value.	Soil contaminated with hazardous substances such as heavy metals or chemicals loses its usability for agriculture or construction, and it poses health and environmental risks, thereby constituting waste.
Neutrals	Utility = 0
Potential = Risks	These items exist at the edge of utility, where potential benefits are balanced by the risks of harm, resulting in a net utility of zero.	Sand in the desert typically does not have immediate utility due to its location and abundance. However, it does not pose inherent harm or negative utility either. Therefore, sand in the desert context is best classified as a neutral.

Contextual Factors

The definition of waste is categorical and universally applicable. However, this classification is not solely determined by the inherent properties of the materials but is also influenced by contextual factors. While the fundamental definition holds true universally, examining how context affects it provides a deeper understanding of market dynamics. Factors affecting the tradability of materials, and therefore their status, include:

Factor	Definition	Application
Properties	The fundamental material characteristics	Some materials, based on their intrinsic properties, are more useful than others
Quality	The physical, chemical and biological conditions of the materials	High-quality materials typically hold more value than low-quality counterparts
Volume	The quantity or scale of materials	Larger volumes of material are more likely to have value due to economies of scale
Location	The proximity of materials to potential users	Materials located far from potential users may lose value due to high transportation costs
Other Conditions	Economic, social, and regulatory considerations	Materials linked to economic, social, or legal risks are less likely to have value due to associated costs or risks