Flexible Waste Management Under Uncertainty

34 Pages Posted: 6 Feb 2013

See all articles by Luca Di Corato

Luca Di Corato

Ca Foscari University of Venice - Dipartimento di Economia

Natalia Montinari

University of Lund, School of Economics

Date Written: February 5, 2013

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: invests in recycling capacity under circumstances where it would not do so otherwise; invests earlier, and benefits from a higher expected net present value.

Keywords: real options, flexibility, municipal waste, recycling

JEL Classification: C61, Q53

Suggested Citation

Di Corato, Luca and Montinari, Natalia, Flexible Waste Management Under Uncertainty (February 5, 2013). FEEM Working Paper No. 3.2013, Available at SSRN: https://ssrn.com/abstract=2212038 or http://dx.doi.org/10.2139/ssrn.2212038

Luca Di Corato (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Natalia Montinari

University of Lund, School of Economics ( email )

Tycho Brahes väg 1,
S-220 07 Lund, 223 63
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
62
Abstract Views
768
Rank
708,380
PlumX Metrics