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Spatially and Intertemporally Efficient Waste Management: The Costs of Interstate Flow Control
Eduardo Ley, Molly K. Macauley, Stephen W. Salant
RFF Discussion Paper 96-23 | July 1996

The growing trend in interstate shipments of municipal solid waste is a topic of substantial public debate, including numerous Supreme Court decisions concerning waste shipments in the context of the Interstate Commerce Clause and recent Congressional proposals to exempt waste from jurisdiction of that clause. To date, however, very little is known about the effects such proposals might have on the interstate waste market. If interstate waste shipments are restricted, what is the likely economic effect on the public? Are the effects likely to be borne by the producers of waste disposal facilities, or by consumers? Are the effects likely to differ among regions of the country, such that some are better off and others are worse off?

Our research models the interstate market for municipal solid waste and evaluates the potential economic effects of public policies proposed to restrict waste flows. To our knowledge, this research is the first to quantitatively evaluate these proposals. We develop a computerized version of economic models of the use over time of spatially differentiated resources &151 characteristics which well describe the nation's waste disposal facilities. The model provides quantitative estimates of the aggregate social surplus which potentially can be generated by the solid waste industry, and involves calculation of how the capacities of landfills located in different states in the United States should be used over time and which population centers these landfills should serve. We then use the model to calculate how much aggregate surplus would change by the imposition of a variety of non-technological constraints, such as flow controls permitted by the Congress. In addition, we quantify the distribution of these changes in surplus across geographic regions and between producers and consumers of disposal services.

We focus on two regions of the United States, the northeast and midwest. These regions account for about 80% of interstate trade by volume, and involve sufficiently large volumes of transshipments to be subject to recent Congressional proposals for trade restrictions (the proposals generally target large shipments). We also focus on waste that is landfilled, as this is the disposal method for most interstate waste. However, an important input in our model is the cost of alternative disposal methods.

The model we present is rich in detail and flexibly permits a wide variety of policy simulations. Because the effects of policies can be difficult to predict on producers and consumers, across geographic regions, and in the long-run as well as the short-run, these simulations can shed light on understanding numerous implications of various proposals. For example, one of the most important of our results is that restricting the volume of waste that one state may ship to any other state, as recent Congressional bills propose, can actually lead to an increase in the number of interstate shipments as states export smaller volumes to even more states in order to meet limits on the size of shipments to any one state. We also find that policies to restrict interstate waste shipments through import surcharges or volume-based restrictions reduce economic welfare, although some landfill owners in some regions of the country may benefit. Our model generates a lower bound on the magnitude of the reduction in economic welfare from these types of policies; it is about $4 per person per year, although in some regions of the country, the per capita net loss is $30 to $40 per year.

We have organized our report as follows. First, we briefly review proposed legislative developments to restrict interstate shipments of waste and the arguments underlying the debate over them. We then describe our model of interstate waste trade, including key assumptions and the data we use to parameterize the model. After describing our model and data, we analyze four policies: surcharges on imported waste, restrictions on the volume of waste exports, a combination of surcharges and volume restrictions, and an outright prohibition of interstate shipments. We then estimate the effects of each of these restrictions on the interstate waste market, including the extra costs of waste disposal, which geographic regions are most likely to bear them, and whether the costs fall on producers, consumers, or both.

Important caveats about our research involve key assumptions we make and limitations of the publicly available data we use to calibrate our model. We realize that waste trade restrictions may confer benefits as well as impose costs; for example, communities may feel better off when waste imported into their locales is reduced. Although we do not take these benefits into account in our research, our results can serve as benchmarks of the costs against which to measure these benefits. Among our most important assumptions are two that are required to make the model computationally feasible. These assumptions are that waste generation originates, and that disposal facilities are located, in one or at most two locations within a state, and that generation and disposal are co-located (within the same major city) in a state. As we could expect, these assumptions cause our model to underestimate some waste transshipments, particularly small volume shipments. We discuss these and other implications of our assumptions in detail.

The data that we use to calibrate our model are publicly available data on waste generation, waste disposal and transportation costs, estimated demand elasticities for waste generation, and other information. The data are quite limited for several, widely recognized reasons. For example, only recently have some states begun collection of statistics about waste generation, disposal, exports and imports, and data are generally not consistently categorized across states, limiting inter-state comparability. In addition, reported volumes of imports and exports typically do not match between any pair of states (a similar problem arises in international trade statistics on imports and exports).

Despite these assumptions and limitations, we have confidence in the results of our model for several reasons. Our baseline model performs remarkably well in approximating some of the more "credible" "real world" data. For example, it generates estimated average landfill tipping fees and an aggregate volume of interstate shipments that closely approximate the available data. In addition, the pattern of trading partners and the relative volumes of waste traded among partners is consistent with available information.

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