Environmental policy making in real life: illegal waste disposal in the presence of organized crime

In this paper, the complexities of government intervention design in the waste realm are addressed. More specifically, we compare two waste tax regimes (optimal and full cost recovery), allowing for the possible presence of criminal organizations in the waste cycle. Our main conclusions suggest that a full cost recovery tax reacts less than an optimal tax to changes in enforcement, and that higher illegal disposal and larger entry incentives for the mafia may result under full cost recovery. Finally, we illustrate a case under which the full cost recovery equilibrium is closer to first best when the mafia is present.