Secondary materials and international trade: A comment on the domestic market

Concentrating on wastepaper, Grace et al. J. Environ. Econ. Manag. 5, 172–186 (1978)] have argued that international trade in secondary materials can effectively help to stabilize their prices. In their modeling, however, they erroneously assume that pulp sets the upper bound for the price of wastepaper. This paper presents evidence to the contrary. Pulp contracts are typically long term, so wastepaper is frequently an input of last resort. The wastepaper price can therefore easily exceed the price pulp when output demand is high. A geometric model is presented to formalize this explanation, and it is argued from there that the increased stability offered by trade is more significant than suggested by Grace et al.