Flexible Waste Management under Uncertainty
AbstractIn this paper, we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market. The municipality can, by undertaking an irreversible investment, adopt a flexible program which integrates the existing landfill strategy with recycling, keeping the option to switch back to landfilling, if profitable. We determine the optimal share of waste to be recycled and the optimal timing for the investment in such a flexible program. We find that adopting a flexible program rather than a non-flexible one, the municipality: i) invests in recycling capacity under circumstances where it would not do so otherwise; ii) invests earlier, and iii) benefits from a higher expected net present value.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-066.
Date of creation: 11 Dec 2012
Date of revision:
Real Options; Flexibility; Municipal Waste; Recycling;
Other versions of this item:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
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