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Flexible Waste Management under Uncertainty

Author

Listed:
  • Luca Di Corato

    () (Department of Economics, Swedish University of Agricultural Sciences)

  • Natalia Montinari

    () (Strategic Interaction Group, Max Planck Institute of Economics, Jena)

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, 2012. "Flexible Waste Management under Uncertainty," Jena Economic Research Papers 2012-066, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2012-066
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    References listed on IDEAS

    as
    1. Di Corato, Luca & Moretto, Michele, 2011. "Investing in biogas: Timing, technological choice and the value of flexibility from input mix," Energy Economics, Elsevier, vol. 33(6), pages 1186-1193.
    2. Thomas C. Kinnaman, 2006. "Policy Watch: Examining the Justification for Residential Recycling," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 219-232, Fall.
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    7. Highfill, Jannett & McAsey, Michael, 1997. "Municipal Waste Management: Recycling and Landfill Space Constraints," Journal of Urban Economics, Elsevier, vol. 41(1), pages 118-136, January.
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    10. Michele Moretto & Gianpaolo Rossini, 2012. "Flexible Outsourcing[1]," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 33, pages 47-59, January.
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    12. Li, Shanling & Wang, Letian, 2010. "Outsourcing and capacity planning in an uncertain global environment," European Journal of Operational Research, Elsevier, vol. 207(1), pages 131-141, November.
    13. Nagurney, Anna & Toyasaki, Fuminori, 2005. "Reverse supply chain management and electronic waste recycling: a multitiered network equilibrium framework for e-cycling," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 41(1), pages 1-28, January.
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    16. Fontes, Dalila B.M.M., 2008. "Fixed versus flexible production systems: A real options analysis," European Journal of Operational Research, Elsevier, vol. 188(1), pages 169-184, July.
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    Cited by:

    1. repec:kap:enreec:v:71:y:2018:i:2:d:10.1007_s10640-017-0165-0 is not listed on IDEAS
    2. Carlo Reggiani & Francesco Silvestri, 2015. "Municipal Waste Collection: Market Competition and the EU Policy," Working Papers 2015.90, Fondazione Eni Enrico Mattei.
    3. repec:eee:ejores:v:270:y:2018:i:1:p:1-24 is not listed on IDEAS
    4. 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.
    5. repec:eee:ejores:v:273:y:2019:i:2:p:684-694 is not listed on IDEAS
    6. repec:eee:ejores:v:274:y:2019:i:3:p:1055-1068 is not listed on IDEAS

    More about this item

    Keywords

    Real Options; Flexibility; Municipal Waste; Recycling;

    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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