Treat, Dump, or Export? How Domestic and International Waste Management Policies Shape Waste Chain Outcomes

Illegal or unwanted waste disposal methods such as dumping and export are prevalent in practice. To minimize the environmental harm of these methods, policymakers have implemented laws and regulations designed to combat them. Even so, violations are rampant as a high degree of heterogeneity between firms and proprietary information render monitoring imperfect. Decentralized waste disposal chains, a common form of interbusiness organization in this sector, compound this problem as firms also have limited information available on their waste chain partner, creating complex interactions between firm behavior and policy interventions. Against this background, we analyze the effects of domestic and international waste regulations targeting dumping and export, respectively, on firm incentives and compliance. We develop a two-tier waste chain with a producer that generates waste and an operator that treats it. The producer’s waste quality and the treatment operator’s efficiency can be private information. Either party can avoid compliance cost by violating regulations where the producer can arrange for export and the operator can dump locally. Our analysis reveals that primarily focusing on penalizing dumping by treatment operators can worsen environmental harm. Solely focusing on penalizing low-quality waste exports, a common intervention in practice, can also backfire. Instead, penalizing producers for downstream dumping should be given consideration. In addition, the asymmetry in export burden between waste quality levels should be reduced. This paper was accepted by Vishal Gaur, operations management.