Waste from production: an analysis at the firm level

Waste management is an essential tool for policymakers. We derive an efficient production function using a dual cost approach related to waste from the output. Since producers do not bear the cost of waste disposal, the demand for virgin material increases in the production process. Therefore, preserving exhaustible resources by imposing a tax on virgin materials and waste disposals is essential. This study compares the effect of tax on waste and the demand for virgin material. Our results suggest that (a) taxing waste or virgin material will induce recycling only for the polluting firms; (b) a tax on virgin material is highly effective for the polluting firms; however, the output will reduce; (c) a higher tax may lead cross-border trade of waste generated. We also focus on different markets, such as perfectly competitive markets and imperfectly competitive markets. We conclude as the number of firms increases under Cournot’s oligopolistic setup, the effect on the profitability becomes negligible. The findings of this study have greater implications for the environment and climate policies.