Economic incentives and the quality of domestic waste: counterproductive effects through ‘waste leakage’

In this paper, we show that introducing a unit–based fee for the collection of household waste may lead to undesirable environmental impacts. Such a fee provides households incentives to generate lower quality organic waste as a form of dumping. An applied general equilibrium model is built that incorporates organic waste in high quality, low quality, and rest waste, including the possibility of substitution between the generation of these three types of waste. The model is used to analyze the effects of introducing a unit-based pricing scheme. The results show that ‘waste leakage’ can occur and that this will have a strong impact on the effectiveness of the unit-based pricing scheme. The successfulness of unit-based pricing largely depends on the willingness of the households. Households with a large preference for a clean environment are less likely to dump rest waste in organic waste. This makes unitbased pricing less suitable for larger municipalities, which in general have a larger share of ordinary consumers who have only small preference for a clean environment. We recommend considering these counterproductive effects explicitly before implementing unit-based pricing of waste collection.