Abstract
This paper is concerned with the waste stock externality associated with production decisions when garbage collection services are financed by means of user charges and illegal disposal is a viable option to firms. As waste accumulates over time, providing disutility not only to present generations but also to future generations by negatively affecting environmental quality, the private and social production choices are compared in the context of a dynamic (intertemporal) model. The inclusion of the dynamics of the waste stock, which translates into a function describing how the deterioration of environmental quality over time is linked to waste production as well as disposal mix (recycling, curbside disposal, and illegal disposal), enables the design of dynamic Pareto-efficient incentive mechanisms for optimal waste production and management.
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