BEHAVIORAL ECONOMICS OF INDUSTRIAL WASTE REDUCTION

Industrial waste reduction provides an opportunity to improve environmental quality while reducing industrial costs. Significant evidence exists that firms can realize economic benefits while practicing waste reduction techniques, yet opportunities are being missed by firms due to internal conflict and entropy. By studying the behavior of individuals within firms, firms and government agencies are more likely to affect a change toward increased waste reduction. Traditional microeconomic theory asserts that costs are minimized by firms. Yet as much evidence as there exists that waste reduction is cost effective, large scale waste reduction has not occurred within the private sector. Firms do not maximize profits and minimize costs because of intrafirm activities that affect the firm's performance relative to its potential. The relationship between various individuals and decision makers within the firm lead to non-maximizing behaviors because various sub-objectives of the firm's members may be inconsistent. This paper formulates a number of hypotheses to explain why firms do not practice all of the profitable waste reduction alternatives available to them and describes how public policy may encourage firms to place waste reduction on their agendas.