Controling externalities with asymmetric information: Ferrous Scrap Recycling and the Gold Rush Problem

Ignace Adant and Pierre Fleckinger ()
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Ignace Adant: CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: We develop a model of the monopsonistic organization of a ferrous scrap recycling branch. Negative externalities in the collection activity and information asymmetries on scrap quality are the distinctive features of the branch. After shedding light on the gold rush problem - the interplay between the collection externalities and the price of the good - we explain how a monopsonistic recycling firm regulates the market for scrap collection. The strategic use of expertise transfer to its suppliers is the recycler's control lever to overcome the potential gold rush externalities. The social consequences of this informational solution are inquired stressing a strong equity vs efficiency dilemma, even more pervasive when accounting for the environmental dimension.

Date: 2005
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