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Flexible Waste Management under Uncertainty

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  • Luca Di Corato

    (Department of Economics, Swedish University of Agricultural Sciences)

  • Natalia Montinari

    (Strategic Interaction Group, Max Planck Institute of Economics)

Abstract

In 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.

Suggested Citation

  • Luca Di Corato & Natalia Montinari, 2013. "Flexible Waste Management under Uncertainty," Working Papers 2013.03, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2013.03
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    References listed on IDEAS

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    Cited by:

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    2. Lambertini, Luca, 2021. "Regulating the tragedy of commons: Nonlinear feedback solutions of a differential game with a dual interpretation," Energy Economics, Elsevier, vol. 100(C).
    3. Carlo Reggiani & Francesco Silvestri, 2015. "Municipal Waste Collection: Market Competition and the EU Policy," Working Papers 2015.90, Fondazione Eni Enrico Mattei.
    4. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    5. Tsekrekos, Andrianos E. & Yannacopoulos, Athanasios N., 2016. "Optimal switching decisions under stochastic volatility with fast mean reversion," European Journal of Operational Research, Elsevier, vol. 251(1), pages 148-157.
    6. Gambella, Claudio & Maggioni, Francesca & Vigo, Daniele, 2019. "A stochastic programming model for a tactical solid waste management problem," European Journal of Operational Research, Elsevier, vol. 273(2), pages 684-694.
    7. Cui, Hailong & Sošić, Greys, 2019. "Recycling common materials: Effectiveness, optimal decisions, and coordination mechanisms," European Journal of Operational Research, Elsevier, vol. 274(3), pages 1055-1068.

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    More about this item

    Keywords

    Real Options; Flexibility; Municipal Waste; Recycling;
    All these keywords.

    JEL classification:

    • 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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