The purpose of our paper is to analyze a design of efficient disposal system of industrial waste and a tax on industrial waste leading to optimal solutions. We also consider the using of its tax revenue.
The economic model in our paper is composed of firms discharging waste, disposers of waste, final disposers of waste and a local government. Firms discharging waste must recycle a part of waste and dispose a remaining waste. They hand the remaining waste to disposers of waste and are charged the tax on waste by a local government. A local government chooses whether he pays its tax for a reinforcement of monitoring for illegal dumping or a subsidy for disposers of waste to dispose. If the using of its tax revenue is a reinforcement of monitoring for illegal dumping, illegal dumping by disposers of waste decreases. But it causes that recycling rates are larger than optimal recycling rates. If the using of the tax is a subsidy for disposers of waste to dispose, it leads to decreases of illegal dumping by them and achieves socially optimal solutions.