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Optimal environmental policy for waste disposal and recycling when firms are not compliant

  • Ino, Hiroaki

We investigate a model that considers disposal and recycling activities after the consumption of products. In the field, the deposit-refund (D-R) policy has been considered as an ideal policy for internalizing disposal costs, which can result in the realization of the first-best policy. However, the possibility of firms' illegal disposal has been neglected. We introduce a monitoring cost to prevent firms from disposing of collected residuals illegally and induce the second-best D-R policy. We find that the relation between the monitoring problem for firms and the price of the recycling market brings about a variation in the optimal level of the refunds (which is typically smaller than the first-best level). Further, 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 the tradable rights market.

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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 2 (September)
Pages: 290-308

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:290-308
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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  1. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
  2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  3. repec:ebl:ecbull:v:17:y:2007:i:6:p:1-9 is not listed on IDEAS
  4. Don Fullerton & Thomas C. Kinnaman, 1993. "Garbage, Recycling, and Illicit Burning or Dumping," NBER Working Papers 4374, National Bureau of Economic Research, Inc.
  5. Don Fullerton & Wenbo Wu, 1996. "Policies for Green Design," NBER Working Papers 5594, National Bureau of Economic Research, Inc.
  6. Walls, Margaret & Palmer, Karen, 2001. "Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies," Journal of Environmental Economics and Management, Elsevier, vol. 41(1), pages 94-108, January.
  7. Palmer, Karen & Walls, Margaret, 1997. "Optimal policies for solid waste disposal Taxes, subsidies, and standards," Journal of Public Economics, Elsevier, vol. 65(2), pages 193-205, August.
  8. Lee, Dwight R., 1984. "The economics of enforcing pollution taxation," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 147-160, June.
  9. Don Fullerton & Ann Wolverton, 2000. "Two Generalizations of a Deposit-Refund System," NBER Working Papers 7505, National Bureau of Economic Research, Inc.
  10. repec:ltr:wpaper:1997.11 is not listed on IDEAS
  11. Chongwoo Choe & Iain Fraser, 1997. "An Economic Analysis of Household Waste Management," Working Papers 1997.11, School of Economics, La Trobe University.
  12. Dinan Terry M., 1993. "Economic Efficiency Effects of Alternative Policies for Reducing Waste Disposal," Journal of Environmental Economics and Management, Elsevier, vol. 25(3), pages 242-256, November.
  13. Don Fullerton & Ann Wolverton, 2003. "The Two-Part Instrument in a Second-Best World," NBER Working Papers 10140, National Bureau of Economic Research, Inc.
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