Waste demand in the context of waste price mimicking

In this paper we set up a two-stage theoretical model of consumers’ demand and municipalities’ pricing policy for residual municipal solid waste collection and processing. Local policy makers set the local residual municipal solid waste price in order to maximize welfare in the municipality net of waste disposal costs, potential perks and political costs associated with high waste tax rates. As consumers might use prices in neighboring municipalities as a yardstick when judging the local politicians performance, our theoretical model includes the possibility for municipalities to take account of other municipalities’ waste prices. Using spatial econometric estimation methods to test the predictions of our model on Flemish data shows that local jurisdictions do indeed interact strategically with each other when deciding on waste prices. As expected this interaction is stronger when municipalities are members of the same municipal waste joint venture