Free municipal waste trade as an incentive to recycling. A theoretical study

According to the Self-Sufficiency and Proximity Principle (SSP), municipal waste (MW) disposal has to be confined within delimited territorial zones, with no trade allowed. The justification is usually the need to make each community aware of its environmental responsibility and discourage diversion of MW to "waste havens". In this paper, we explore the possible benefits associated with some opening to MW treatment service trade. We assume that some areas are equipped with MW treatment facilities, while others are not. We demonstrate, under standard assumptions, that removing SSP and allowing trade of MW disposal services between such regions may foster MW selection in both areas. This is true not only when disposal capacity is constrained, so that a part of the original demand for MW diversion is unsatisfied, but also when it is unconstrained and can accommodate all the residual unsorted MW, provided that the design of rewarding schemes is appropriate. On the contrary, if both districts were equipped with a facility, the same would not be true, and each one would be more willing to exploit the plant’s capacity before engaging in efforts to reduce waste. JEL classification: olid waste, waste management, disposal facilities, waste trade, regulated markets.