Inducing Sorting Investment and Implementation of an Alternative e-Waste Market under Imperfect Information

In a context of high disposal costs in rich countries together with an imperfect monitoring system, the non reusable part of e-wastes is often illegally mixed with the reusable part and ends up in developing countries leading to an `environmental injustice' and important negative externalities. To tackle this problem, we propose an alternative e-waste market for a joint trade in reusable and non-reusable e-wastes, other than the monitoring system and we analyze the optimal mechanism design for its implementation. In this paper, we use the theory of incentives applied to e-waste market. We want to show how to induce firms in North to undertake sorting investment that would help implementing the alternative e-waste market. Results show that, if the sorting cost is low, the optimal contract to induce sorting investment and to implement the alternative e-waste market for a joint trade in reusable and non-reusable e-wastes is the Baron-Myerson (BM) contract. Moreover, we iden tify conditions to avoid the standard market. Finally, we construct the optimal decisions of the firm in South over the set of sorting costs. One of the direct implications of the results is that if the cost is not too high to deter the sorting investment, the firm in South should give incentives to the firm in North to invest in sorting so that the alternative market can easily be implemented.