Agglomeration in Green Cities? :Emergence of Recycling Market Kenmei Tsubota * Graduate School of Economics, Kyoto University May,2008 preliminary draft Abstract This paper examines the impact of garbage (municipal wastes) on the agglomeration econ- omy. Waste is proportionately generated from consumption and is charged disposal cost. This paper shows the conditions for emergence of recycling market, according to the shape of dis- posal cost function respect to the regional population. In reality disposal costs may depend on its region’s characteristics. Our analysis examines both cases under the same and the different disposal cost structures. At the transition from disposing to recycling, the determinant of recycled rate is also shown endogenously. Then this paper shows when recycling should be and how municipal waste affects the agglomeration. 1 Introduction There are several issues related with urban problem. Most of the urban problems concern about the negative effect from increasing population. These problems are typically related with environmental aspects in cities, for example, air pollution, transportation congestion, and environ- mental quality. One of the topic which is dealt within this paper is waste management in city. It is crucially related with human activity; consumption. Even though people do not want to keep their waste in their home, after consuming products, they generate wastes. Especially in cities, there is little space to incinerate or to keep waste. People are nervous about the treatment when waste is disposed near their residences. Thus people want their wastes to keep away from their nearby and deal as NIMBY (Not In My Back Yard) goods. As people concentrate in cities, they accompany waste into cities. As people increase their consumptions, more waste is generated. In particular, when the facilities for proper disposal of waste are scarce, the problem is serious. Notably in developing countries, the situation is more serious because the economic rate and population grow very rapidly. Then the amount of waste increases also very rapidly. There are several empirical studies on waste management system and waste economics. How- ever, the relation between the population size and the waste management system is not obvious. From the section 2 we propose two observations from Japanese municipal and prefectural data. One is the positive correlation between the increase of population size and the increase of per capita garbage. The other is the positive correlation between the population increase and the in- crease of the disposal garbage price. Based on these observations, we construct two-region general equilibrium models. In the theoretical literature there are several researches on waste management. There are mainly three types of approaches to this topic. (1) Dynamic models ; Smith (1972), Highfill and McAsey (1997) mainly discussing the landfill capacity as an exhaust resource. (2) Static Partial Equilibrium ; Miedema (1983), Palmer and Walls (1997) mainly discuss the combination of tax and subsidy on the recycling sector. (3) Static General Equilibrium ; Fullerton and Kinnaman (1995) Fullerton and Wu (1998) mainly discuss the optimal tax and subsidy policies on waste * Graduate Schoool of Economics, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto-shi, Kyoto, 606-8501, Japan. E-mail: kenmei.tsubota@gmail.com Phone: +81-90-9320-3615 1