The efficiency of indirect instruments for waste externalities: Integrated approaches to environmental policy

Although traditional policy prescriptions suggest the use of direct instruments on pollution, the literature has extensively proposed indirect instruments for the optimal correction of waste externalities. Based on a literature review exercise, this paper shows that the confluence of both the risk of illegal disposal, which prevents the use of direct instruments, and the existence of different options for waste control (output, substitution and disposal effects) demands a comprehensive approach. Production, consumption and disposal decisions need to be influenced by indirect instruments to execute the optimal mix of waste control options. The efficiency of indirect instruments rests on the material and technological interdependencies between the different material flows along the product’s life-cycle. These interdependencies affect the number, types and optimal level of instruments and, then, constitute the essence of an integrated approach to waste management.