Double Waste Reduction under Standards

Abstract

This paper proposes a general equilibrium model with “double waste reduction” under standards of waste finally disposed of, and shows that some types of tax and/or subsidy must be required in addition to the standards to internalize externalities due to the waste disposal. Households and firms can reduce their waste independently using inputs or time. Two types of waste are distinguished, one of which is called “potential waste” from the households, and the other is called “actual waste” from the firms. The combinations of tax-and-subsidy policies under standards can be classified by the existence or inexistence of waste reduction by each agent. For all the cases, a degree of marginal disutility due to waste disposal relative to a shadow price of actual waste under the standards is particularly important since it determines whether a tax or a subsidy is required. We also examine a special case where the standards are not binding as a result of zero or very low price of potential waste.