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Optimal Environmental Policy for Waste Disposal and Recycling When Firms Are Not Compliant

  • Hiroaki Ino

    ()

    (Kwansei Gakuin University)

We investigate, considering disposal and recycling activities after the consumption of products, the models that explicitly incorporate both the product market and the recycling market. In the field, the deposit-refund (D-R) policy has been discussed as an ideal policy to internalize disposal cost, which can result in the realization of the first-best policy. However, the possibility of firmsf illegal disposal has been neglected. We introduce monitoring cost to prevent firms from disposing of collected residuals illegally and induce the second-best D-R policy. We find that the monitoring problem for firms brings about a variety in the optimal level of the refunds (which is typically be smaller than the first best level). Furthermore, 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 tradable emission permits market. We find that the second-best system of this policy is the combination of the take-back requirement depending on the amount of each firmfs outputs and initial exemption from that requirement.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp50.pdf
File Function: First version, 2010
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 50.

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Length: 37 pages
Date of creation: Jan 2010
Date of revision: Jan 2010
Handle: RePEc:kgu:wpaper:50
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  1. Ann Wolverton & Don Fullerton, 2003. "The Two-Part Instrument in a Second-Best World," NCEE Working Paper Series 200304, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
  2. Don Fullerton & Wenbo Wu, 1996. "Policies for Green Design," NBER Working Papers 5594, National Bureau of Economic Research, Inc.
  3. Fullerton Don & Kinnaman Thomas C., 1995. "Garbage, Recycling, and Illicit Burning or Dumping," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 78-91, July.
  4. Choe, Chongwoo & Fraser, Iain, 1999. "An Economic Analysis of Household Waste Management," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 234-246, September.
  5. 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.
  6. 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.
  7. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  8. 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.
  9. repec:ebl:ecbull:v:17:y:2007:i:6:p:1-9 is not listed on IDEAS
  10. Don Fullerton & Ann Wolverton, 2000. "Two Generalizations of a Deposit-Refund System," NBER Working Papers 7505, National Bureau of Economic Research, Inc.
  11. Lee, Dwight R., 1984. "The economics of enforcing pollution taxation," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 147-160, June.
  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.
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