Optimal Environmental Policy for Waste Disposal and Recycling When Firms Are Not Compliant

Hiroaki Ino

No 50, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We investigate, considering disposal and recycling activities after the consumption of products, the models that explicitly incorporate both the product market and the recycling market. In the field, the deposit-refund (D-R) policy has been discussed as an ideal policy to internalize disposal cost, which can result in the realization of the first-best policy. However, the possibility of firms f illegal disposal has been neglected. We introduce monitoring cost to prevent firms from disposing of collected residuals illegally and induce the second-best D-R policy. We find that the monitoring problem for firms brings about a variety in the optimal level of the refunds (which is typically be smaller than the first best level). Furthermore, we investigate an alternative policy that requires producers to take back residuals, and show how this policy works equivalently to the second-best D-R policy by applying the theory of tradable emission permits market. We find that the second-best system of this policy is the combination of the take-back requirement depending on the amount of each firm fs outputs and initial exemption from that requirement.

Keywords: Deposit; Refund; Monitoring; IllegalWaste Disposal; Take-back requirement; Tradable rights (search for similar items in EconPapers)
JEL-codes: H21 Q21 Q28 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-01, Revised 2010-01
New Economics Papers: this item is included in nep-env
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http://192.218.163.163/RePEc/pdf/kgdp50.pdf First version, 2010 (application/pdf)

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Journal Article: Optimal environmental policy for waste disposal and recycling when firms are not compliant (2011)
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