Wednesday, August 20, 2014
Francesco Silvestri (Dipartimento di Economia e Management, Universita di Ferrara) describes Competition and Environmental Externalities in the European Market of Municipal Waste.
ABSTRACT: The article focuses on the European Union Municipal Waste (MW) industry, exploring the effects of the conjoint implementation of Self Sufficiency Principle and of Proximity Principle (SSP/PP), that force local community to divert MW in the same district where it is generated. Since the number of disposing facilities allowed to operate in a district is regulated by (regional) public planning, forbidding through SSP/PP the opportunity to divert MW outside the district reduces the degree of competition in the whole sector. The rationale for a rule that denies a pillar of EU thinking such as competition policy seems to be to limit the end-of-the-pipe disposal of MW, and to favour the alternative strategy of selected collection and reuse-recycling. Setting an Industrial Organization model and solving it through backward induction, we show that in facts any increased competition in the industry leads to higher environmental externality, but even that the a compensation scheme from gainers to losers would be for effective than SSP/PP. This is true for any consistent value of the relevant variables, apart the case when the marginal external cost is over a specific threshold; in that unique case, the use of SSP/PP as a command and control environmental standard is justified.