Decentralisation and waste flows: A welfare approach

We analyse incentives, equilibria and implications of the governance framework for the disposal of municipal solid waste in an N-Region model where waste mobility is allowed. The key decisions revolve around the flow of waste between regions and the externalities associated with its final disposal. Two different institutional settings are considered: a centralised framework where a central planner takes all the decisions and a decentralised model where each region decides on its waste flows. When the regions are characterised by different levels of efficiency in the final treatment of waste, a certain degree of mobility might allow to reap the benefits of higher efficiency. However, when coupled with decentralisation, waste flows may produce sub-optimal outcomes that undermine environmental protection. In the light of these results, we show how the regulator can use the transfer price and the proximity principle as welfare-improving tools.