Summary

• Waste pollution is a major environmental problem

• Recycling behavior depends on how other households recycle and how social norms form in this environment

• We develop a spatial equilibrium model where households

  1. choose their residence location
  2. decide how much effort in recycling

• Structurally estimate the model using Swedish data on recycling behavior

• Use counterfactual experiments to investigate the relative efficiency of recycling policies

Social Networks

• Social networks are important in many aspects of our lives

• Most individual decisions are affected by the decisions of our friends. Examples:

  • The decisions to buy a product,
  • to work hard at school,
  • to use a specific technology,
  • to commit a crime,
  • to train, to smoke etc

• The emergining empirical literature on those issues motivates the theoretical study of how network structures affect individual decisions

♳ Social Networks & Recycling

Guerin et al. (2001): recycling increases when more activists participate nationally in environmental organizations
Hage et al. (2009): availability of recycling facilities and social norms
Brekke et al. (2010): strong social interaction effects in recycling behavior
Halvorsen (2008): norms and supply of recycling services
Tankard and Paluck (2016): expose people to a popular peer who recylces or inform people about others' recycling efforts
Nyborg et al. (2016): discuss the importance of social norms as informal institutions that can enforce collectively desirable outcomes

♴ Recycling as voluntary contributions to a public good

• costly to the individual in terms of time or inconvenience

• environmental benefits are non-rival, non-excludable and hardly noticeable to the individual herself

• substantial number of experimental studies have concluded that individuals contribute more to public goods when others’ contributions increase
  Fishbacher et al (2001) Croson et al (2005) Krupka and Weber (2013)

♵ Model overview

• Two-stage model of spatial equilibrium where households choose their residence location
• Social network is based on the residence locations
• Different locations form social norms about recycling
  • average effort exerted by all residents
• Locations also differ in recycling facilities and other amenities
• Second stage: households decide how much effort to exert in recycling, and aggregate behavior emerges

Related Literature on Social Networks

1. Local-aggregate models

• individual behavior affected by aggregate effort of the reference group
  Ballester et al. (2010): criminal networks
  Helsley and Zenou (2014): interaction in cities
  Verdier and Zenou (2017): cultural assimilation.

2. Local-average models

• captures the cost of deviating from the social norm and focuses on the role of conformity
  Ushchev and Zenou (2018): adoption of costly technology

Contribution

1. Theoretical part completed

• Novel two stage model
• Characterization of equilibrium

2. Empirical part in progress

• Estimation method
• Identification
• Estimation
• Counterfactuals

Work in progress

The Model

Locations

• index of the locations, locations in total
• marginal recycling cost at location (proxied distance to recycling station)
• net utility of living at location (amenities, other than recycling-related)

Individuals

• individual intrinsic propensity to recycle, absolutely continuously distributed over
• pdf of , continuously differentiable on

Optimal recycling behavior results in

• type -individuals' equilibrium recycling effort at location

Preferences

• direct utility level at location dependent on equilibrium spatial distribution
  and

• intrinsic motivation to recycle

• taste for conformity

• idiosyncratic individual type
  EV1, i.i.d. across individuals and locations, independent of
• is scale parameter
• marginal disutility of agglomeration
• local externalities in location , for example, pollution, congestion, crime, etc.
  Assume and , i.e.

Spatial distribution

• probability for individual to reside in location

• unconditional share of individuals at location

• social norm of recycling in location

• average propensity to recycle at location

Optimal recycling (second stage eqb)

• A1: Assume to ensure interior solution

• FOC for maximization with respect to leads to

• plugging this into the definition of gives

Indirect utility function

• and thus we obtain the expression for the optimal level of recycling

• indirect utility at location , after plugging in optimal recycling effort

Spatial equilibrium (first stage)

Assuming that has EV(1) distribution, the choice probability for location is given by

A spatial equilibrium is given by a vector

such that each agent makes utility-maximizing choices of residential location and recycling effort, taking the actions of the others as given.

Computng spatial equilibrium

For each consider the following composite mapping:

Integrating the collection of such maps w.r.t. we have a new map

With the help of one more mapping

Spatial equilibrium is then given by the fixed point of the mapping .

Equilibrium existence and uniqueness

Theorem:

• Spatial equilibrium as defined above exists
• There exists a threshold such that the spatial equilibrium is unique if .

Sketch the proof

• Conditions of Brower’s fixed point theorem apply
• We show that the Lipschitz constant of satisfies , hence the set is non-empty.
• Hence,
  
  and is a contraction mapping for all
• By Banach's contraction mapping principle, is unique, and therefore is too

Data

• Household survey data (collected for OECD, 2011).

• Average recycling data by municipality (Swedish Waste Management Association),

• Location data for all the recycling stations in Sweden (Förpacknings och Tidningsinsamlingen company),

• Statistics Sweden data on other location characteristics.

Estimation approach

• Data on individual choice + location average outcomes

• Parameterize the disctribution of the intrinsic propensity to recycle

• Estimation resembles mixed logit with additional aggregated moments

Similar to
Berry, Levinsohn, Pakes (2004) "BLP with micro and macro data"

Work in progress

Conclusion

• Two stage spatial equilibrium model where households
• Unique equilibrium under certain conditions
• Structural estimation using Swedish data
• Counterfactual to investigate the relative efficiency of recycling policies