Flexible Waste Management under Uncertainty

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 áexible program which integrates the existing landÖll strategy with recycling, keeping the option to switch back to landÖlling, if proÖtable. We determine the optimal share of waste to be recycled and the optimal timing for the investment in such a áexible program. We Önd that adopting a áexible program rather than a non-áexible one, the municipality: i) invests in recycling capacity under circumstances where it would not do so otherwise; ii) invests earlier, and iii) beneÖts from a higher expected net present value.