We develop a general model for pricing a depletable, replaceable asset, and discuss its application in determining optimal tipping fees for a sanitary landfill. We show that the optimal fee includes a component that grows at the real interest rate as space in the landfill is depleted, and then drops when a new landfill is built. Because the scarcity cost of landfill space increases as the landfill is filled, it may be optimal to delay a waste reduction program (such as recycling, composting, or incineration) until the landfill is partially full.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Management, Monitoring, Policy and Law