Bridging legal and economic perspectives on interstate municipal solid waste disposal in the US

Waste Management 31 (2011) 147–153

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Waste Management journal homepage: www.elsevier.com/locate/wasman

Review

Bridging legal and economic perspectives on interstate municipal solid waste disposal in the US Christine Longo a,1, Jeffrey Wagner b,⇑ a b

Office of Program Evaluation and Risk Analysis, Research, Analysis and Statistics, IRS, US Department of Treasury, 500 N. Capital St., NW Washington, DC 20001, United States Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY 14623-5604, United States

a r t i c l e

i n f o

Article history: Received 22 February 2010 Accepted 9 August 2010 Available online 1 September 2010

a b s t r a c t Managing municipal solid waste (MSW) within and across regions is a complex public policy problem. One challenge regards conceptualizing precisely what commodity is to be managed across space and time. The US Supreme Court view is that waste disposal is the article of commerce per se. Some justices, however, have argued that while waste disposal is the article of commerce, its interstate flow could be impeded by states on the grounds that they have the authority to regulate natural resource quality within their boundaries. The argument in this paper is that adopting the economic theory view of the article of commerce as landfill space brings the majority and dissenting US Supreme Court views—and the resulting sides of the public policy dispute—into closer alignment. We discuss waste management policy tools that emerge from this closer alignment that are more likely to both withstand judicial scrutiny and achieve economic efficiency. Ó 2010 Elsevier Ltd. All rights reserved.

Contents 1. 2. 3. 4. 5.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supreme Court views of MSW trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Synthesizing the economic theory of MSW management with Supreme Court jurisprudence . Policy tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions and directions for future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Introduction Managing municipal solid waste (MSW) within and across regions is a complex public policy problem of significant and growing magnitude.2 Ley et al. (2002, pp. 207–208) forecasted that US interstate trade would decline throughout the 2000s; however, the most recent data indicates that total interstate waste shipments have instead increased.3 Amidst pressure on waste managers and public administrators to effectively manage the growth in waste disposal demand (including recycling-related services) and the interstate flow of waste traffic, waste management officials are ⇑ Corresponding author. Tel.: +1 585 475 5289; fax: +1 585 475 2510. E-mail addresses: [email protected] (C. Longo), [email protected] (J. Wagner). 1 Tel.: +1 202 927 5708. 2 See, e.g., Kollikkathara et al. (2009). 3 McCarthy (2007, p. 2) 0956-053X/$ - see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.wasman.2010.08.005

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147 148 148 149 152 152 153

also faced with persistent opposition to waste imports. The vast majority of citizens that reside in states with landfill space have strong opinions against the expansion of old—and the creation of new—landfills.4 Therefore, the waste management policy goal is to promote MSW disposal policies that are (a) constitutional, (b) economically efficient, and (c) perceived as fair. In light of this goal, the purpose of this paper is threefold. First, a review of the differences between the majority and dissenting Supreme Court opinions on this topic is provided. Second, a new interpretation of these differences is suggested, based upon the economic theory of waste management. This new interpretation serves to clarify how goals (a) and (b) above can be jointly achieved. Third, given this unifying basis provided by economic theory, promising strategies waste management policy administrators might undertake are reviewed and synthesized, facilitating linkages of goals (a) and (b) 4 Indeed, as Wagner (2009, p. 3019) reports, some states, such as Maine, have now banned the construction of new commercial landfills.

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with goal (c). While our paper focuses upon landfilling of MSW, our theory and policy suggestions could likewise be extended to related contexts such as waste-to-energy plants, material recovery facilities, and recycling plants. And while our analysis focuses upon the US legal framework, our analysis sheds light on legal-economic tensions that must be managed within interregional waste disposal markets in general.

2. Supreme Court views of MSW trade The current majority US Supreme Court view of interstate MSW trade is that it is constitutional, and that when any state acts to impede the flow of such trade in a discriminatory manner, it is in violation of the Interstate Commerce Clause of the US Constitution.5 This view unfolds from several cases, including Philadelphia vs. New Jersey (1978); Fort Gratiot Sanitary Landfill Inc., vs. Michigan Department of Natural Resources (1992); Chemical Waste Management Inc., vs. Guy Hunt, Governor of Alabama (1992); Oregon Waste Systems Inc. vs. Department of Environmental Quality of the State of Oregon (1994); and perhaps the key case, C&A Carbone Inc. vs. Town of Clarkstown, New York (1994).6 In the above cases, individual states attempted to place price or quantity restrictions upon waste imports or exports. All of the cases except Chemical Waste Management (1992) involved MSW; Chemical Waste Management (1992) involved hazardous waste. Since hazardous waste is more problematic than MSW, the majority view expressed in that case sheds additional light upon the Court’s general view of interstate waste management. Perhaps the central issue that runs through these cases regards the determination of the article of commerce that is being transacted when MSW disposal occurs across state lines. This is because the constitutionality of possible federal and state policy interventions depends upon a good or service’s status as an article of commerce. If a good or service is considered an article of commerce, individual states cannot interfere with that good or service’s flow across state borders. The first point that must be established is that both majority and dissenting justices have long held that solid waste per se is the article of commerce, against which states cannot discriminate without violating the Commerce Clause. In other words, it is not on this point that they disagree. That a state’s scarce landfill space is viewed as disjoint from solid waste is made clear, for instance, in the Court’s majority view expressed in Philadelphia: ‘‘It is true that in our previous cases [regarding, for examples, oil and minerals] the scarce natural resource was itself the article of commerce, whereas here the scarce resource and the article of commerce are distinct.”7 The majority then wrote in Fort Gratiot Landfill: ‘‘Solid waste, even if it has no value, is an article of commerce.”8 As Klein (2003, p. 8) notes, this majority opinion was modified somewhat in the Carbone case, wherein the majority maintained that the article of commerce is ‘‘the service of processing and disposing of MSW.” However, as shall be discussed further below, this shift in perspective is not as great as it may seem. In terms of dissenting opinions—the great majority of which were 5

US Constitution, Article I, Section 8, Clause 3. The US Supreme Court is comprised of nine justices and the major roles of the court include evaluating the constitutionality of executive and legislative branch policies and settling disputes between states. Cases are rarely decided unanimously; as such, both majority and minority opinions are published, even though the majority opinion becomes ‘‘the rule of law.” When the legal debate refers to treating waste in a ‘‘discriminatory manner,” the reference is with regard to states treating waste generated outside its borders differently (e.g., by banning importation or by taxing at a higher rate) than waste generated within its borders. 6 We discuss important features of the Carbone decision further in Section 4, where we address the policy option of governments acting as ‘‘market participants” in waste management. 7 Philadelphia vs. New Jersey, 437 US at 628. 8 Fort Gratiot Landfill vs. Michigan DNR,504 US at 359.

penned by the late Chief Justice William Rehnquist—there is congruence with the majority view on this point of conceptualizing the per se article of commerce. Indeed, Chief Justice Rehnquist wrote in Oregon Waste Systems, for instance: ‘‘. . .while I understand that solid waste is the article of commerce, it is not a commodity sold in the marketplace; rather it is disposed of at a cost to the State” (italics added).9 Having suggested that US Supreme Court justices share a common view of the per se article of commerce, consider now their differences of opinion. As Klein (2003) carefully describes, while Chief Justice Rehnquist (sometimes joined by others) agreed that waste per se was the article of commerce, he and his dissenting colleagues argued in all of the above cases that the destinations for the articles of commerce were not articles of commerce, but rather natural resources to be managed outside of the market.10 Indeed, the dissenting view holds that ‘‘. . .a clean and healthy environment, unthreatened by the improper disposal of solid waste, is the commodity really at issue. . .”; ‘‘landfill space evaporates as solid waste accumulates”; and ‘‘states may take actions legitimately directed at the preservation of the State’s natural resources, even if those actions incidentally work to disadvantage some out-of-state waste generators.”11 Klein (2003) argues persuasively that the philosophical gap between majority and dissenting justices serves to reduce both state and federal intervention in waste management problems. Taking the view that MSW is the article of commerce leads justices to forbid states to regulate its interstate shipment, while taking the view that landfill space is a non-market commodity disallows federal intervention into state affairs. In light of Klein’s (2003) argument, the key to resolving this impasse in both the theory and policy arenas is for both majority and dissenting justices to re-conceptualize the article of commerce according to economic theory: landfill space is the article of commerce, rather than waste or waste disposal service. Doing so enables both majority and dissenting concerns to be substantially addressed, and therefore greater clarity when formulating policy to be obtained. One basis for our belief that greater clarity will arise is the fact that what stands as the rule of law today may not prevail in the longer-run. Membership on the US Supreme Court changes, for example, and new justices examining variations of previously argued cases may see the rule of law differently. Another basis for our belief is that while the dissenting view is the minority legal view, it does nevertheless give legal voice to what waste managers, regulators and affected citizens otherwise know as NIMBY. Thus, what we are suggesting in our paper is that it is possible to more closely align these divergent legal views in a manner that respects both the majority and minority views (in a historical perspective). And based upon that realignment, certain waste management policy tools that are consistent with what were considered divergent legal views suggest themselves. In that case, the four policy tools that we discuss below in Section 4 can be considered relatively robust if the rule of law (majority view) should change. 3. Synthesizing the economic theory of MSW management with Supreme Court jurisprudence The economic theory of exhaustible resource management in general, and of landfills in particular, has as long of a history as the legal debate described above. The key theoretical paper is by 9 Oregon Waste Systems vs. Department of Environmental Quality of the State of Oregon (1994), 511 US at 112. 10 Chief Justice Rehnquist was joined in dissent by Justice Burger in Philadelphia (1978); by Justice Blackmun in Fort Gratiot (1992) and in Oregon Waste Systems (1994); and by Justice Blackmun and Justice Souter in Carbone (1994). 11 Oregon at 110; Oregon at 108; and Chemical Waste Management at 349.

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C. Longo, J. Wagner / Waste Management 31 (2011) 147–153 Table 1 Summary comparison of legal and economic perspectives. Majority legal

Minority legal

Economic theory

Article of commerce

Waste disposal service

Waste disposal service

Landfill space: a depletable natural resource

Destination of article of commerce

Is another article of commerce to be managed by the market

Is a natural resource to be managed by state regulation

Is a natural resource to be managed jointly by the market and by state regulation

View of article of commerce

Interstate trade of MSW is constitutional; states may not impede the flow of trade in a discriminatory manner

The environment is the commodity really at issue, thus states may take actions to preserve their natural resources, even if those actions disadvantage out-of-state waste generators

Each parcel of land is different. Therefore waste disposal fees will likely differ, as well as waste flows

Policy implication

Free interstate disposal of MSW is socially desirable.

Real and perceived site-level negative externalities must be taken into rigorous account by any social mechanism for allocating waste disposal across states

If all external costs of waste transportation and disposal are accounted for, then free interstate trade in MSW disposal is socially efficient

Gaudet et al. (2001), following an intellectual history started by Hotelling’s (1931) paper regarding the general problem of optimally depleting a generic exhaustible resource. As is the case in the legal literature, the economic literature also grappled with the conceptualization of the article of commerce in the context of solid waste management. However, viewing the landfill as a depletable natural resource leads immediately to the conclusion that landfill space is the essential article of commerce. Gaudet et al. (2001, p. 1149), for instance, state: ‘‘When a city transports solid waste to a particular landfill, the reader should envision instead extracting the displaced volume of space and shipping it to that city.” Their model generalizes Hotelling’s theory of exhaustible resources, and Ready and Ready’s (1995) extension of Hotelling’s model to the specific case of landfilling, by taking spatial variation into account. Their theory, based upon the economic principle of comparative advantage, implies that since each parcel of land and political jurisdiction is different, waste disposal fees (‘‘tipping” fees) in each jurisdiction are likely to be different, and therefore waste flows to each site are likely to be different as well.12 It is rather important in the Gaudet et al. (2001, p. 1152) theoretical model that each city’s marginal benefit (‘‘demand”) function from waste disposal just equals the full marginal cost of disposal (‘‘supply”) function. The marginal benefit function is downwardsloping; as the disposal price (tipping fee) is reduced, all else equal, citizens would like to generate and dispose a greater flow of waste into any particular landfill. The full marginal cost function reflects the cost of transporting the waste to each landfill; the cost of burying each unit of waste and monitoring any resulting leachate; the imputed cost of depleting each unit of space at the landfill site (as filling the space today increases the value of each unit of scarce, remaining space); and any external costs (e.g., odor, unsightliness, noise, and social stigma). By not taking such external costs into account, the price of disposal service would be too low, resulting in overuse of waste disposal capacity.13 If at any point in decision-making the full marginal cost of a site exceeds the benefit to a city, the city should not utilize that particular site for the next unit of waste disposal at that point in time. In

the Gaudet et al. (2001) model, each landfill is assumed to have a different, constant and certain full marginal cost. In other words, their model assumes that waste management policy administrators have reliable measures of such costs, and that there is perfect and costless enforcement of rules designed to ensure that the costs are indeed known and certain. The overall theoretical result is that if all external costs of waste transportation and disposal are accounted for, then free interstate trade in MSW disposal is socially efficient (yields greatest social net benefits) in both space and time. Ley et al. (2002) soon followed Gaudet et al. (2001) in simulating the significant dollar social loss that would accrue from various combinations of interstate flow controls that individual states and the federal Congress have considered over the years. How does this economic theory of waste management compare with the majority and dissenting Supreme Court views summarized in Section 2? First, recall that both majority and dissenting justices viewed the article of commerce as waste or waste disposal service. This is in contrast to the economic theory of waste disposal, wherein landfill space is considered the article of commerce per se. The thesis pursued in this paper is that, should both sides of the legal dispute adopt landfill space as the article of commerce per se, they each shall be able to maintain the key points of their concern while reconciling with the economic theory view. The argument is as follows. The majority Supreme Court view is that free interstate disposal of MSW is socially desirable, precisely as the Gaudet et al. (2001) model shows. At the same time, the dissenting Supreme Court view is that real and perceived site-level negative externalities must be taken into rigorous account by any social mechanism for allocating waste disposal across states. As discussed above, this too is a fundamental element of the Gaudet et al. (2001) model. Thus, adopting landfill space as the article of commerce brings the two seemingly disparate views of the Supreme Court into closer alignment, enabling appropriate dual focus upon external cost and the merit of free trade as crucial elements for achieving social efficiency. Table 1 facilitates comparison of the legal views presented in Section 2 with the economic theory view presented above.

12 Gaudet et al. (2001, p. 1150). This result is also related to the economic literature on differential pollution fees/policies that are to be expected in socially efficient approaches to pollution problems that differ spatially. Peltzman and Tideman (1972, p. 959), for instance, argue: ‘‘We contend that nationally uniform pollution charges could only be optimal in the long run in a very unusual world and particularly are not optimal in this world in the short run (now), and further that a temporally efficient set of charges is more likely to emerge under local rather than federal control.” And Ulph (2000, p. 225) writes: ‘‘[If] there are differences between states with respect to key characteristics for environmental policy such as the nature of local industries, endowments of natural environmental resources, preferences of residents for a clean environment, technologies for abating pollution, etc., then it is likely that an efficient policy set by the federal government will involve differences between states to reflect these genuine environmental differences between states.”

4. Policy tools

13

Podolsky and Spiegel (1999, p. 253).

Forging the confluence of these legal views and of the forces faced by waste management policy administrators hinges on the effective management of site-level externalities. Given that a state’s discriminatory interference with interstate disposal of MSW is unconstitutional in the majority view, and inefficient with respect to the economic theory of waste management, the reconciliation of all views requires implementation of non-discriminating policies. The economics literature suggests four non-exclusive approaches a state may take to modulate site-level externalities. In contrast to previous studies that analyze subsets of the four

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approaches, the current study presents the four approaches in a parallel manner since, as noted by Kollikkathara et al. (2009, p. 983), a single method for waste management is not likely to serve as a universal solution across the varieties of waste contents and geographic regions of a country. Doing so also enables theorists and practitioners to better envision how subsets of the approaches may be combined to achieve any particular policy goal at the lowest possible cost. The most often discussed approach is one of applying a uniform per-unit (Pigouvian) tax to all waste entering a private facility within a state’s borders.14 Kinnaman (2006, p. 225) reports that such non-discriminatory taxes are currently in place in several states; participating states and the sizes of per-unit taxes assessed per state are presented in Table 2 of his analysis. As discussed earlier, economic theory expects a wide variance in the magnitude of site-level externalities, and therefore predicts that a correspondingly high variance in Pigouvian charges will efficiently emerge. Kinnaman (2006) argues that a menu of landfill disposal taxes applied uniformly within each state is likely the most efficient approach to managing the externalities—even more efficient than requiring communities to participate in recycling initiatives.15 If such taxes could indeed be calibrated according to the site-level externalities generated in each community, both the majority and dissenting Supreme Court concerns could be addressed. However, along the lines of the Peltzman and Tideman (1972) argument, if there are multiple disposal facilities per state, each with their own marginal private and marginal external costs, the state-level disposal tax proposed by Kinnaman will no longer be strictly efficient. Related to the topic of imposing a Pigouvian fee is the possibility of subsidizing communities that agree to host disposal facilities. As Kinnaman points out, any compensation received by a host community would need to be subtracted from the site-level external cost estimates one derives in order to compute the net externality. This is because the purpose of the host community compensation is to offset any external costs of hosting the facility. The economic theory of waste management predicts that host community compensation packages should be quite various; Jenkins et al. (2004, p. 513) find that this is indeed the case. More recently, Caplan et al. (2007) provide a promising methodology for determining the optimal magnitude for such compensation. Success along these lines of matching the per-unit compensation to each host community with measures of per-unit external costs particular to each host community is crucial for achieving a result amenable to both majority and dissenting Supreme Court views of interstate MSW trade. Progress along these lines is based upon non-discriminating free trade (important in the majority view) and upon a rigorous accounting of site-level externalities (important in the dissenting view). A second approach a state, and in turn its cities or counties, can undertake is to uniformly impose safety regulations upon all of the

14 See Urie (1995, p. 330) for instance, who writes: ‘‘It now seems clear that severance taxes, uniform in their imposition, raising general revenues for the taxing state, are valid.” Urie (1995, p. 366) also notes the US Supreme Court’s majority view, expressed in Chemical Waste Management v. Hunt (1992, p. 2015), that less discriminatory regulation than bans on out-of-state waste are available to address any state’s particular concerns: ‘‘. . .a generally applicable per-ton additional fee on all hazardous waste disposed of within Alabama; a per-mile tax on all vehicles transporting hazardous waste across Alabama roads; or, an evenhanded cap on the total tonnage of waste landfilled at Emelle which would curtail the volume of waste deposited from all sources.” Since MSW is less hazardous than hazardous waste, then we may assume the Court’s view with respect to hazardous waste extends a fortiori to the case of MSW. 15 Kinnaman (2006, p. 230). See also Palmer and Walls (1997) and Palmer et al. (1997) on the relative merits of promoting recycling versus applying policy pressure to other stages of the material life-cycle.

landfills in its jurisdiction.16 This is known in the economics literature as ‘‘ex ante precaution.” This is, of course, a widely implemented tool, and is considered to have been largely responsible for environmental improvements at landfills heretofore. States and their cities or counties may develop more stringent procedural and technological standards than those suggested by federal guidelines. The literature regarding the economics of regulation cautions, however, that (a) there may be cheaper means than ex ante regulation for achieving any particular goal and that (b) regulation is costly not only in terms of imposing adjustment costs upon firms but also in terms of ensuring that regulations are followed. Thus, while regulations have grown in volume and complexity, their particular effect on landfill quality (and the public’s perception of that quality) is still a subject of research inquiry. For instance, Jenkins et al. (2004, p. 515) write: ‘‘Despite the fact that Resource and Conservation Recovery Act (RCRA) reduced health and safety risks, solid waste facilities continue to be perceived as risky and are associated with negative externalities that affect the quality of life including truck traffic, odors, and stigma.” Thus, the evidence is that regulation alone will not resolve the public’s concerns, and therefore will not alone resolve the gap between the majority and dissenting Supreme Court justice views. A third strategy a state may take is to impose liability for compensatory damages (and in some cases/states, punitive damages as well) on operators of MSW disposal facilities within its borders.17 This is known in the economics literature as ‘‘ex post liability”. Liability may be assigned on a strict or negligence-rule basis, and liability may be proscribed via statute or sought via common law theories of strict liability or negligence. When liability is strict, the harming party must pay compensatory damages regardless of the level of precaution taken; when liability is governed by negligence-rule, compensatory damages are paid only if the harming party is shown not to have taken an appropriate level of precaution. While strict liability is applied in the area of hazardous waste management (under the US Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA) and by the vast majority of states),18 including hazardous substances found in municipal solid waste landfills, US legislatures and courts have been reluctant to extend common law strict liability to activities such as municipal solid waste disposal that are not deemed ‘‘abnormally dangerous” or ‘‘ultrahazardous.” For instance, the Superior Court of Connecticut articulated in both Accashian vs. City of Danbury (1999) and Vaillancourt vs. Town of Southington (2002) that operating a municipal solid waste landfill is not considered an ultrahazardous activity, and therefore plaintiffs in Connecticut cannot seek relief under a common law theory of strict liability. In the case of negligence-rule liability, the government faces the challenge of establishing reasonably clear due-care standards. Given the difficulty in doing so, firms will face uncertainty about the stan-

16 See 42 USC §6941 et seq. that proscribes federal minimum landfill technology standards to states that wish to receive federal funding to carry out state MSW management plans. States may elect to impose more stringent technology and operational standards than the minimums articulated in federal law. See, for instance, Willey vs. Cass County (1985, Mo App) 689 SW2d at 656) and Missouri state law (Mo. Stat. §260.215.2), which also allows for cities and counties to adopt rules, regulations and standards that are stricter than those required by the state (Missouri Department of Natural Resources). Murray and Spence (2003) argue that EPA-mandated waste management policies customized on a state-by-state basis would survive constitutional challenges on Commerce Clause grounds, since Congress granted that authority to the EPA in the Resource Conservation and Recovery Act and its amendments. 17 See, for instance, Alaska Stat. §46.03.760 (2008) and Illinois Stat. 415 ILCS 5/42 (2008). 18 See Alberini and Austin (1999) for discussion of the trend in hazardous waste management whereby several states that originally opted for negligence-rule liability switched to strict liability during the 1980s and 1990s. This change has the effect of shifting the burden of proof (and the costs) from the government to the potential harming parties.

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dards, and hence may over-comply or under-comply.19 Either type of non-compliance with due-care standards can raise the cost of the liability approach above the cost of the other approaches to modulating environmental quality near landfills that are discussed in this section. Additionally, there is the so-called judgment-proof problem, wherein parties to the environmental problem may not have sufficient assets to clean up problems, even if discovered and successfully prosecuted. Many US states have responded to this possibility by requiring the posting of performance bonds, insurance or letters of credit. However, these may be costly mechanisms that may or may not be cost-effective ways of dealing with site-level externalities. For even if self-insurance or letters of credit are available at zero explicit cost, the economic or implicit cost is positive if taking the self-insurance or letter of credit route reduces lenders’ willingness to extend additional credit (say, for capital improvements at the landfill). A fourth approach involves the state, city, or county owning the landfill facility and acting as a market participant; doing so permits some exemptions to the Commerce Clause. This possibility was analyzed by Petersen and Abramowitz (1995) and Podolsky and Spiegel (1999).20 Petersen and Abramowitz (1995) focus upon the Carbone decision, which banned local governments from requiring private haulers to bring MSW to local waste treatment facilities. The authors note that the US Supreme Court did not foreclose government parties from engaging in flow control per se; the Carbone decision merely requires market participation, such that governmental flow control efforts may be non-legislative in nature. This can be achieved in multiple ways, beginning with local governments taking direct ownership of MSW hauling. Petersen and Abramowitz (1995) argue, however, that local governments may also delegate responsibility for hauling to private firms, via contract or franchise, and still maintain legal flow control of MSW to its disposal facility or facilities of choice. Lastly, the authors suggest ‘‘economic flow control” as an option, whereby local governments subsidize tipping fees in order to attract waste flows, and finance the difference through alternative mechanisms (e.g., property taxes). In the view of Podolsky and Spiegel (1999), however, public intervention in markets must be restricted to alleviating market failure. One type of market failure occurs when the efficiencies that result from economies of scale are not captured by private firms. In that case, state or local market participation can be considered a possible strategy in order to capture such efficiencies. However, they caution that other interventions—specifically, additional non-discriminatory fees on waste disposal (as described above)— are often more efficient than market participation by state or local entities. As such, opportunities to act as a market participant must be evaluated on a case-by-case basis. Thus, a remaining area for research regards better understanding of specifically which factors lead some waste disposal facilities and waste hauling operations to be publicly owned while others are privately owned. The four policy tools reviewed above are well-established in the economics and related literatures and they can be employed singularly or in complementary fashion. While the tools are often analyzed on a singular basis, the policy world often finds these strategies (particularly the first three of the four) applied as complements. Thus, more research attention must be focused upon the complementarities between tools. For instance, the economics literature suggests that complementary use of regulation and liability is often an optimal strategy.21 White and Wittman (1983) presented one of the first analyses that compared price and quantity

19

See Calfee and Craswell (1984). See also Urie (1995, pp. 376–377). 21 ‘‘Optimal” in the sense that the policy action taken equates the marginal benefit of (demand for) action with the marginal cost of action, and that the action taken is the lowest-cost action possible.

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instruments with liability instruments. In their model of pollution control under uncertainty, strict liability resulted in lower expected deadweight loss than price instruments (Pigouvian fees), and negligence-rule liability resulted in lower expected deadweight loss than strict liability. Parallel to these results, some researchers have considered optimal combinations of ex ante regulation and ex post liability (strategies two and three on the list above, and what is observed in landfilling) under a variety of scenarios. Bhole and Wagner (2008), for example, consider a quite general scenario in which a polluter may take care in both observable and unobservable ways and where the probability of the polluter facing conviction is uncertain. They show that the complementary use of regulation and liability is optimal under certain conditions. However, since neither they nor others consider how the optimal combination might change if undertaken in an environment in which Pigouvian charges are also assessed, future research should explore this possibility. Moreover, this combination should be explored in environments in which the effectiveness of a firm’s technology is uncertain, and in which strategy four on the above list is possible. Theoretically, if the complementary use of regulation and liability is optimal in a certain situation, there should be no need for other strategies (such as the Pigouvian taxes that Kinnaman (2006) reports to be in wide use) to be undertaken as well. However, it may certainly be the case that regulation and/or liability can be eased at the margin to facilitate the introduction of a tax or subsidy that serves to reduce the overall social cost of meeting any particular environmental quality objective. The effectiveness of the above policy approaches depends upon accurate empirical measures of site-level externalities. Ley et al. (2002, p. 193) noted in the formulation of their model that accurate site-level estimates of external costs are scarce: ‘‘We were unable to find data on external costs reliable enough to reach definitive conclusions about the effects of landfill restrictions.”22 In order to proceed with their simulation of the interstate MSW market under alternative policy regimes, Ley et al. (2002, p. 204) hypothesize that the external cost imposed on a city adjacent to a landfill is directly proportional to the tons of MSW deposited in that landfill and the population density of the city relative to the average density of all the cities. These variables imply the implicit valuation of crucial factors such as distance from site, prevailing winds, and subsurface rock structures. They confirm that properly conceptualizing a per-ton Pigouvian fee to reflect site-level marginal external cost is quite important. In their simulation of the Gaudet et al. (2001) model, introducing such a fee structure raises social welfare by $0.23 billion.23 Following Ley et al. (2002), multiple additional studies of site-level externalities emerged; a number of them are compared and analyzed by Eshet et al. (2006). Kinnaman (2006, p. 221) notes that studies by DEFRA (2004) and Davies and Doble (2004) estimate external costs of MSW transportation and disposal to be between $5.38 and $8.76 per compacted ton. Most recently, however, Sasao (2004), Jin et al. (2006), and Caplan et al. (2007) show how choice experiment methodology can be utilized to estimate site-level negative externalities per household. The choice experiment is a survey methodology that, in the waste management context, gathers information from affected parties as to their qualitative perceptions of waste disposal technologies and quantitative willingness to pay and/or willingness to accept compensation in exchange for changes in features of the landfill design and operation. Choice experiments are members of the contingent valuation family of studies. Contingent valuation studies typically describe the features of a project and ask study participants for willingness to pay or willingness to accept

20

22 A key earlier study is by Garrod and Willis (1998), who found relatively insignificant externalities in their study of values of homes located near a landfill. 23 Ley et al. (2002, p. 211).

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bids (often in a yes–no format such as ‘‘Would you be willing to accept $X (or would you be willing to pay $Y) toward this project or policy goal?”). In contrast, choice experiments present affected parties with a relatively small number of choices (usually between 2 and 10) and ask which choice is most preferred. Each choice (in the MSW disposal facility context) is a permutation of features such as facility size, distance from population centers, distance from ground/surface water, host community/citizen compensation, and types of waste received (household versus industrial, and local versus regional/national). For instance, Sasao (2004) finds that external costs perceived by potential host community citizens in his study are higher if waste is to be received at the landfill from outside the region, and/or if the waste comprises industrial waste instead of household solid waste. In addition to producing compelling estimates of site-level external costs (and therefore estimates of the types and magnitudes of host community compensation necessary to build new, or modify existing, disposal facilities), this methodology is quite promising in terms of promoting collaborative, inclusive siting processes and results (facilitating goal (c)— perceptions of fairness—described in the Introduction).

5. Conclusions and directions for future research The first goal for this study was to compare and contrast the views US Supreme Court justices have held regarding the constitutionality of unimpeded interstate trade of MSW disposal services. The contrasting views boil down to differing conceptualizations of the precise article of commerce that is flowing across state boundaries. The first contribution of this paper is to suggest that adopting the economic theory of waste management’s view of the article of commerce as landfill space brings the differing (majority and dissenting) US Supreme Court views—and the resulting sides of the public policy dispute—into closer alignment. Based upon this closer alignment, the second contribution of this study is to review, compare and contrast the four main policy approaches available to waste management policy administrators that (a) are likely to survive scrutiny on constitutionality grounds, (b) are consistent with economic efficiency, and (c) promote waste management decision processes (including siting processes) and results that are likely to be perceived as relatively inclusive, and therefore relatively fair. While our study focuses upon US Supreme Court views and how they compare with the general economic theory of waste management, the theoretical approach and policy implications shed light on how legal and economic tensions arise, how legal and economic forces impact each other, and how the legal and economic aspects can be optimally managed in interregional waste disposal markets more generally. In addition to the observations offered in the process of comparing and contrasting policy approaches in the previous section of this study, several additional areas for future research suggest themselves. For example, one current focus of the economics literature is on the possibility of transferring estimates of marginal benefits and marginal costs (including external cost) across sites that are believed to be similar. This is known in the economics literature as ‘‘benefits transfer analysis.” To the extent that benefit estimates are not income-sensitive and that the ecological aspects of the sites are similar, this is potentially useful. Such analyses are relatively expensive, so that it may be prohibitive to conduct such studies at every possible site. As a cost-saving way forward, established studies could be introduced early in the decision-making process, to see if agreement could be reached on utilizing existing benefit–cost study parameters; if not, the affected parties could agree up front to share the costs of a new study. The prospect of paying those costs serves as an incentive to explore the appropriateness of existing studies.

A second area for exploration regards a reconsideration of the competitive market assumption in current theoretical models of the MSW disposal marketplace. A state-versus-federal bargaining model of regulation—such as the one developed by Ulph (2000)— could be very useful for better understanding current intrastate and interstate allocations of waste disposal in general, and of the determination of site-specific externality measures in particular. This type of modeling structure is likely better able to accommodate the simultaneous consideration of the four policy approaches described in this study, as the structure is designed to take strategic behavior into account. Of course, the strengths and weaknesses of all of the above policy tools and suggestions, based as they are upon the economic theory of waste management, are based, pari passu, upon the cost–benefit analysis paradigm. While cost–benefit analysis enjoys fairly broad support, that paradigm is not without controversy, both from within and from outside the economics literature. Hansson (2007) presents an insightful overview of the philosophical aspects of cost–benefit analysis that require attention. There are two particular aspects that emerge in the context of waste management. One is the assumption that human beings should, or even can, form reliable dollar estimates for potential/actual personal harm, or potential/actual environmental harm. A second and closely related assumption is one of commensurability—the act of expressing all aspects of concern in waste management in a single unit, namely dollars. Morrissey and Browne (2004, pp. 299, 303) also note these concerns in their discussion of the more general family of waste management models, adding that cost–benefit analysis allows tradeoffs of costs and environmental quality that are not consistent with the concept of sustainability. While these are certainly legitimate concerns, much progress has been made in the cost–benefit analysis paradigm (e.g., in the development of choice experiments, as described in the latter part of Section 4) to improve the reliability and interpretation of data collected. Such data can be of use to waste management policy administrators either on its own, in a traditional cost–benefit analysis, or as part of an alternative, multicriteria evaluation method. All evaluation methods weight, in an imperfect manner, various factors that are thought important to the decision. Economists tend to advocate cost–benefit analysis, and therefore the economic theory of waste management, on the notion that prices (either from observed market data or derived from carefully designed experiments) constitute fairly reasonable weights on the relative importance/value of the several factors to consider in decision-making. Sunstein (2000, 2005) provides a comprehensive, balanced discussion of the reasons why economists argue that cost–benefit analysis, imperfect as it is, provides useful information to decision-makers, in environmental and more general regulatory contexts. Finally, as Morrissey and Browne (2004) and Kollikkathara et al. (2009, p. 983) suggest, the next frontier in MSW disposal regards rethinking the economic, social and ecological sustainability of traditional disposal strategies. Méry and Bayer (2005), for instance, caution that when estimating and comparing landfill-site-level external costs, care must be taken to consider the intertemporal differences in the behavior of landfill technologies (e.g., externalities of dry tomb landfills versus bioreactors). Taking this dimension into account amongst the waste management policy tools discussed herein seems quite promising—in economic, legal, and philosophical terms. Acknowledgements The content of this article is the opinion of the writers and does not necessarily represent the position of the Internal Revenue Service. This paper began as the first author’s honors undergraduate thesis completed in the Economics Department at the Rochester

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