Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72973
Authors: 
Di Corato, Luca
Montinari, Natalia
Year of Publication: 
2013
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 03.2013
Abstract: 
In this paper, we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market. The municipality can, by undertaking an irreversible investment, adopt a flexible program which integrates the existing landfill strategy with recycling, keeping the option to switch back to landfilling, if profitable. We determine the optimal share of waste to be recycled and the optimal timing for the investment in such a flexible program. We find that adopting a flexible program rather than a non-flexible one, the municipality: i) invests in recycling capacity under circumstances where it would not do so otherwise; ii) invests earlier, and iii) benefits from a higher expected net present value.
Subjects: 
Real Options
Flexibility
Municipal Waste
Recycling
JEL: 
C61
Q53
Document Type: 
Working Paper

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