 Mixed Signals: Market Incentives, Recycling, and the Price Spike of 1995Frank Ackerman and Kevin Gallagher Game Theory and Information from University Library of Munich, Germany Abstract: Environmental economics assumes that reliance on price signals, adjusted for externalities, normally leads to efficient solutions to environmental problems. We explore a limiting case, when market volatility created “mixed signals”: waste paper and other recycled materials were briefly worth an immense amount in 1994-95, then plummeted back to traditional low levels in 1996. These rapid reversals resulted in substantial economic and political costs. A review of academic and business literature suggests six possible explanations for abrupt price spikes. An econometric analysis of the prices of wood pulp and waste paper shows that factors that explained price changes in 1983- 93 contribute very little to understanding the subsequent price spike. From the econometric analysis and from other sources, we conclude that speculation, rather than “rational” economic factors, must have played a major role in the price spike. If speculatively driven price spikes can disrupt an environmentally important industry such as recycling, then the surprising implication for public policy is that measures to control or stabilize prices, far from interfering with the market, may actually help to make it more efficient. Keywords: price spike; recycling; economic policy; market volatility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:0106001 Access Statistics for this paper More papers in Game Theory and Information from University Library of Munich, Germany |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.