Research Paper: Microeconomic Analysis of Walmart's Waste Management

This research paper examines Walmart's waste management problem through a microeconomic lens. The paper identifies the negative externality caused by Walmart's waste disposal practices, particularly the environmental damage and penalties incurred due to improper waste management at its warehouses. The study analyzes the economic implications of these issues, including the company's failure to internalize social costs. It then proposes two potential solutions: internalizing the cost of waste management and purchasing waste disposal rights from the local government. The paper also discusses the ethical and social responsibility implications of each approach, recommending the latter option to maintain production levels and improve the company's reputation. The report concludes by emphasizing the importance of sustainable practices and corporate social responsibility for Walmart.

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RESEARCH PAPER
CHECKPOINT 1
Microeconomics

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Contents
Introduction................................................................................................................................3
Problem statement......................................................................................................................3
The solution to problem.............................................................................................................3
Ethical social responsibility implication of the approaches.......................................................4
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6

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Introduction
Macroeconomic problems are inevitable in the operation of the firm and effective mitigation
of the problem creates the path to success. Wal-Mart is one of the largest multinational retail
companies headquartered in Bentonville, Arkansas, USA. The company has more than 7000
stores and 114 warehouses in the USA. One of the major microeconomic problems currently
faced by the company is the negative reputation among the customers due to its current waste
management policy. This paper aims to discuss the problem of the company from the
perspective of the literature of microeconomics.
Problem statement
There are around 114 warehouses of the company which are used for the collection and
storage of various products acquired from vendors. Kreps (2019) stated that most of the
warehouses of the company are located in semi-urban or rural areas. Now, the problem is the
company has been under warning several times for failing to dump the waste in a proper area
that has resulted in high penalty cost for the company. The local government penalise the
company on the grounds of harming the environment surrounding the warehouses of the
company. This has also reflected in the deteriorating brand reputation of the company which
also have impacted the sales of the company. This waste management problem from the side
of the company is there in most of the warehouses of the company. From the perspective of
the company, this is a problem as it has been paying a lot to the government as a form of
penalty which it intends to cut down now.
Economically, the problem for Walmart lies in the fact that the company does not internalise
the social cost of operation of the warehouses. That means the waste generated from the
warehouses are mostly dumped in the nearby lakes or field which reduces the quality of the
environment. Therefore, the market equilibrium is achieved by the company simply based on
the private cost of production and the social cost is not included (Taylor, 2018). Thus, based
on the private cost, the warehouses of Walmart dump high quantity of wastes in the
environment leading to a penalty and bad reputation of the company. In terms of economic
literature, this problem is known as negative externality where a firm produces at a certain
level without considering the social cost of production.

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The solution to the problem
Internally the management of the company can undertake several approaches to reduce the
problem of a negative externality. According to Iossa & Martimort (2015), negative
externality imposes the cost of operation to the other economic entities who are not directly
involved in the firm's production process. In this case, the owners and the people in the
nearby localities are the ones who are negatively affected by the company and its operation.
The waters are getting contaminated, wastes dumped at the field putting extra burdens on the
government for clearing up. This is ruining the market reputation which is very important for
the sustainable operation of the company.
One solution that can be undertaken by the management of the company is that it can
internalise the cost of the negative impacts of the company on the environment and the
people. Under this, the company in its operation can also incorporate the cost of cleaning the
lakes or the field where they are dumping the wastes. As a result, the social cost of
production will be included in the process and hence the output will be lowered. This will
reflect in the volume of wastes that are dumped in the environment. The advocates of
environmental economics such as Cowell (2018), stated that environment has fixed capacity
to absorb the waste from the economy, however, it is exceeded, it becomes a burden to the
environment as a whole. Therefore, this policy of the company will allow reducing the waste
below the government-set threshold.
Another solution to the problem can be purchased right from the local government. This
means transferring the social cost that is not included in the production process directly to the
local government. The government will then be able to use the money for cleaning up the
wastes generated by the warehouses so that it does not harm the environment and the local
people of the area (Leuprecht & Sokolsky, 2015). Compared to the previous solution, this
will allow Wal-Mart to have its production level intact. The company will buy annual rights
from the government that will nullify the negative externality that it currently generates in
nearby areas.
Ethical social responsibility implication of the approaches
In both the approaches, the ethical responsibility of the firm comes into play. In both the
cases the firm can keep on paying penalty to the government without bothering about the
wastes it is generating in the environment. However, it is in the vision of the company to
have a sustainable operation which requires the company to have a social and ethical

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responsibility. That not only includes the interest of the buyers and the workers but also the
interest of the environment as a whole as well. In the first approach internalising the social
cost can reduce the burden on the government and the local people of the area. The company
is also a part of the environment and hence it is the responsibility it of it to ensure a balance
in the system. Rincón-Moreno et al. (2019) stated that the organisations operating for
economic gain also has the responsibility to ensure a balance in the society and the
internalising the cost of waste can make the equilibrium socially just. Apart from that, the
second approach also has its social and ethical implication. In this approach, the company
will be directly paid to the government of the local area. It shows the corporate social
responsibility of the company to cooperate with the government in keeping the environment
clean.
Recommendation
Given the two approaches of the company that can reduce the effects of the problem, it is
recommended to use the second option. The rationale behind using the second option is that it
does not reduce the production level of the firm. Given the high demand from the side of the
customers of the market, the low production level can increase the prices of the products
being sold from the retail. In turn, this can reduce the competitiveness of the company with
the other rival companies of the market. In addition to that, under the second approach, the
government is cooperating with the local government and hence it can give the company a
great reputation which it could have lost due to its previous waste management policies. In
addition to that, it is also recommended to the management of the firm to have monitoring
processes for the warehouses so that each of them can work as per the policy of the company.
That will allow the company to maintain a good image and reputation in the market.
Conclusion
Therefore, one of the biggest problems which are faced by the company is the deteriorating
brand reputation due to its waste management problem. It was putting an extra burden on the
environment and the local government which was ruining the brand reputation of the
company. The study points out two solutions to the problem that will solve the problem and
improve the reputation of the company among the customers of the market as well. Lastly,
the paper also provides recommendations based on the cost and benefit to the company as
well.

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Reference
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Iossa, E., & Martimort, D. (2015). The simple microeconomics of public‐private
partnerships. Journal of Public Economic Theory, 17(1), 4-48.
Kreps, D. M. (2019). Microeconomics for managers. Princeton University Press.
Leuprecht, C., & Sokolsky, J. J. (2015). Defense Policy “Walmart Style” Canadian Lessons
in “not-so-grand” Grand Strategy. Armed Forces & Society, 41(3), 541-562.
Rincón-Moreno, J., Franco-García, M. L., Carpio-Aguilar, J. C., & Hernández-Sarabia, M.
(2019). Share, Optimise, Closed-Loop for Food Waste (SOL4FoodWaste): The Case of
Walmart-Mexico. In Towards Zero Waste (pp. 165-190). Springer, Cham.
Taylor, T. (2018). Principles of Microeconomics: OpenStax.