Information Asymmetry in the Informal Waste Ecosystem


kabadiwalla connect


As a general rule the most successful man in life is the man who has the best information.
– Benjamin Disraeli


What do Indian farmers and rag-pickers have in common? At face level, both groups couldn’t be more different: one’s livelihood is based on producing crops, while the other earns a living by salvaging waste. But interestingly, both operate within sectors that are structured in a very inequitable fashion.

Consider these statistics: according to a report published by the National Sample Survey Organization (NSSO) in 2013, the average monthly income of an agricultural household is INR 6426. Dr Rahul Singh, from the Birla Institute of Management Technology, estimates that Indian rag-pickers earn anything between Rs. 45 to 80 in a day – an average of Rs. 1875 each month. In both sectors, however, the final product accrues much more value at the higher end of the supply chain, and is traded for much higher prices than what farmers and rag-pickers receive.

There are many reasons attributed to the unequal distribution of profits, especially at the lower end of the supply chain; one important factor is the unequal access to crucial information relating to the market.

In technical terms, this is referred to as ‘information asymmetry’ – a market economy which has ‘imperfect information’ between all the players. Information asymmetry can be defined as a situation where some party in a transaction benefits from having preferential access to information, leading to power imbalances in transactions.

Information asymmetry can exist across different industries and verticals. In India, it is particularly prevalent in the agriculture sector. A recent report describes the disconnect that exists between the industry’s multiple activities – including planning production, growing, harvesting, packing and transport, among others – which can lead to increased transaction costs, market friction and a situation in which particular stakeholders wield more power than others.


In the agricultural sector, this asymmetry manifests itself in a variety of ways. In terms of structure, the industry comprises of farmers who produce crops, traders and middlemen who aggregate, wholesalers who bid for the produce aggregated by the traders, and eventually, consumers. Buying and selling of produce takes place at specified neighborhood markets, or ‘mandis’ and these are largely dominated by traders.

In general, farmers at the bottom of the supply chain are completely dependent on these traders to push their wares to consumers. They are particularly disadvantaged because of fewer opportunities of what is called ‘spatial arbitrage’; since they are not mobile, they cannot collect cumulative information on current prices and patterns of demand across different markets. This is an expensive operation that is far beyond their capability and as a result, they are unable to make decisions that would maximise their profits

This situation is clearly illustrated in the survey conducted by the NSSO. According to this data, farming households are relatively unaware of government procurement options for crops and crop insurance schemes. They are also far removed from new technologies and guidance from state-run research institutes.

On the other hand, large traders have the capacity to collect this information from different markets, which gives them better bargaining power over the farmers. It also gives them an understanding of how to hike the prices of produce, significantly increasing their mark-up. Besides this, large traders have the advantage of temporal arbitrage; that is, those who have the capital to store large quantities of produce for longer periods of time can also affect market prices in specific localities by doing so. The end result is fairly straightforward: while consumers pay competitive prices for produce, farmers receive only a fraction of the income.

Interestingly, Kabadiwalla Connect’s primary research has shown similar cases of information asymmetry in the waste space. Much like the structuring of the agricultural sector, the informal waste space includes a variety of buyers and sellers along a complicated chain. At the bottom-most level are mobile rag-pickers, who source waste manually from street dumps, landfills and homes. Waste is then passed on to itinerant buyers (who have the added benefit of a vehicle) and stationary scrap-dealers of varying capacities and scales. Finally, waste is routed to recyclers who upcycle it to a product of a much higher value.


Predictably, it’s the rag-pickers and itinerant buyers who are most disadvantaged because of the lack of information. While they source and salvage waste, they do not have the knowledge or ability to add value to it in any way. On the other hand, scrap-dealers (especially those at the higher end of the chain), are much better equipped to do so. They purchase waste at extraordinarily low prices from rag-pickers and then align their management process to better meet industry demands. As you travel up the waste chain, they sort waste into increasingly specialized categories and aggregate it to the extent that will make them maximum profit. They also know to transport waste to geographies where demand is highest.

The knowledge of these dynamics is what allows scrap-dealers and wholesalers to push up their revenue while simultaneously paying their suppliers a bare minimum. What results is that players at the base level of the supply chain are highly underpaid – in countries like Nicaragua for example, waste-pickers earn between $1.50 to $2 per day, while in Mexico, the average is around $7 a day. In his paper ‘Waste Picker Cooperatives in Developing Countries’, Martin Medina writes about how waste-pickers in Colombian, Indian and Mexican cities receive only 5 percent of what the recycling industry eventually pays for waste they supply.


One of the scrap-dealers whom we interviewed is based in MMDA Colony. Most of his competitors work out of rented or makeshift locations and purchase several categories of waste in small quantities. However, he has utilized his financial capability and knowledge to build a more successful enterprise. He invested in a 2400 square foot yard to aggregate material, and chose to specialize in only one category: paper. Rather than source his material from several stakeholders, he worked out contracts with a few printing presses in the city. These presses not only produce vast amounts of waste paper, ensuring a steady supply, but also shred it before handing it over to him, cutting down on the processing procedures he has to implement in his yard. Once the paper is brought to his yard, his staff sort it into super-specialized categories and bale it to save space. The scrap paper is aggregated until it can be sold for the highest price. His monthly revenue is over INR 1,00,000 – several times what an average kabadiwalla would make.

On the other hand, another scrap-dealer whom we spoke to in Kotturpuram had a very different model. He deals with 13 categories of waste, running the gamut from plastic and paper to metals like copper and aluminium. His suppliers are varied and operate in an ad hoc manner, and he has no understanding of the volume game, neglecting to aggregate his waste before selling it. He makes less than INR 10,000 every month.


There have been various attempts at tackling the information asymmetry in the agricultural sector. An interesting model sought to make market information available on a mobile platform, since cellphones are easily accessible in rural parts of the country. However, there are a few factors that limit the efficiency of these systems. For instance, many farmers are unable to bear the cost of using an online or mobile platform, which means that the service has to be free in order to have a wide reach; but on the flipside, services that are not economically self-sustaining also tend to lose support in the long run. Moreover, these systems are not always created and implemented with a good enough understanding of the needs of the farmers.

There doesn’t seem to have been any highly successful technological interventions tackling information asymmetry in the waste space. However, governments that have lent support to informal waste networks by regularising their functioning have, to an extent, managed to facilitate the free flow of information. In Brazil, for instance, the informal waste sector has been provided with institutional support and organised into unions and cooperatives, making it easier for rag-pickers and scrap-dealers to access information collectively. In India, while there are instances of self-organisation within the informal waste sector, we still have a long way to go until there is no exploitation within the ecosystem.

– Written by Siddharth Hande and Kavya Balaraman: Kabadiwalla Connect is a Chennai-based project that aims at reducing waste sent to urban landfills by leveraging the potential of the informal sector. Our partners include Gubbi Labs and the Indo-German Centre for Sustainability, IIT-Madras. Read the post on their blog.


‘Waste Picker Cooperatives in Developing Countries’ – Martin Medina
‘Role of AMIS in Resolving Information Asymmetries in Agricultural Markets: Guidelines for AMIS Design’ – Laxmi Gunupudi and Rahul De, Indian Institute of Management, Bangalore
‘Socio-Economic Issues in Waste Management By Informal Sector in India’ – Dr Rahul Singh, Birla Institute of Management Technology

Historical Perspectives on the Informal Waste Sector



Ever year, 42 million tons of waste is generated in India, which is the same as the amount of wheat Australia produces annually

Like most countries that are growing quickly and witnessing rapid urbanization, India is beginning to face serious concerns regarding the disposal of its waste. Until now, most urban local governments have adopted an approach to waste management that is neither sustainable nor particularly responsible – identifying landfill sites, filling them with mixed waste for periods that can stretch over decades, and eventually moving on to a new location.

The problem, though, is that leachate and toxins from untreated waste can affect a particular region for years, which is why municipal corporations are now finding it more and more difficult to appropriate areas to convert into landfills. In Bangalore, for instance, the residents of a village called Mavallipura, adjoining one of the city’s primary landfills, resisted efforts to continue disposing of waste in their backyard in 2012; the result was tens of thousands of tons of untreated waste, deposited on the streets of the city. Chennai, on the other hand, is currently routing its waste to two peripheral landfills – both of which will be reaching the end of their lifespan by the end of the year. As of now, no replacement area has been found.

Ironically, urban authorities do not need to face the challenge of sustainable waste management on their own. Most Indian cities have a robust industry of waste ‘experts’ – collectors, transporters and even recyclers – who make a livelihood out of waste, albeit under the radar. Most households sell old newspapers and cardboard to their neighbourhood kabadiwallas, but these men are merely the tip of the iceberg; in fact, the informal waste sector includes not just grassroot-level waste collectors, but series of middlemen who aggregate, sort and transport waste to the appropriate recycling facility – thus keeping it out of the landfill.

The Waste Chain

From a historical perspective, informal waste economies – at least as they are recognized today – began to develop around the 19th century. This was mainly in Europe and largely a by-product of urbanization and industrialization. As urban centres began to form and expand, the quantity of waste generated by them shot up as well. Simultaneously, the spread of the industrial revolution led to an increased demand for raw material, which proved to be infinitely cheaper when sourced from waste. As a result, an informal sector that began to identify items of value within waste streams, and then source, aggregate, process and eventually recycle them, began to form.

Spatially speaking, informal waste industries have organically formed in developing countries. While the first scavenging sectors sprung up in Europe, waste management systems in these countries were soon formalised and steered by local governing bodies, removing any room for unorganised private entities to continue making a living off waste.

However, the reverse has been true for countries such as India, Brazil, Serbia and Cambodia. These countries have witnessed rapid urbanisation, which directly translates to a huge increase in waste generation. They also experience large-scale migration of unskilled, untrained labour towards cities, most of which have no option but to turn to informal occupations such as waste-picking. Moreover, as countries develop more, their urban centres tend to produce a higher proportion of dry waste (paper, plastic, metal and the like), which have huge markets as raw material for the manufacturing sector.

On the other hand, their local governance mechanisms have not yet developed to the point of completely taking over the workspace of informal players. In India, for example, municipal corporations have the infrastructure and capacity to collect an average of only 70 percent of municipal solid waste, and even less to actually process it. This creates the ideal working conditions for a parallel shadow economy to operate.

Very few attempts have been made to actually map out and quantify the informal waste industries in different countries. Largely, this is because it’s extremely difficult – most waste-pickers and small-scale processors work under the radar and prefer to keep it that way, so as to avoid any form of harassment from city authorities. The sector itself is also a fairly disorganised one, with a huge overlap between activities, scale and hierarchy, making it tough to actually categorise its layers. However, there are exceptions to the rule. The Brazilian government, for instance, has formally recognized waste-picking as an occupation and included it as a category in their official census. This has also allowed it to introduce various schemes to better incorporate these entities into formal waste management mechanisms.

In doing so, Brazil has tapped into a potential answer to waste management concerns that most developing countries can learn from: the informal sector has huge capacity for keeping waste out of landfills. As a community, these players have a lot more collective experience in dealing with waste profitably (and as a consequence, responsibly) than most local governments. They have organised themselves into a form of hierarchy based on scale, with lower-rung rag-pickers accessing waste from dumpsites, landfills and formal collection cycles, and higher-level middleman aggregating and segregating waste streams according to market demand. Scrap-dealers at the highest end of the waste chain deal with hundreds of tons of a particular waste category on a daily basis, supplying in bulk to manufacturers looking for cheaper sources of raw material.

Incorporating parallel economies into our formal mechanisms is far from an easy task; it involves policy-level decisions and some forceful execution to actually leverage the potential of the informal sector. On the other hand, given the kind of waste crisis that Indian cities are facing, this doesn’t seem to be an option we can ignore.

– Written by Kavya Balaraman & Illustrated by Satwik Gade. Kabadiwalla Connect is a Chennai-based project that aims at reducing waste sent to urban landfills by leveraging the potential of the informal sector. Our partners include Gubbi Labs and the Indo-German Centre for Sustainability, IIT-Madras. Read the post on their blog.


‘Municipal Solid Waste Management in Indian Cities – A Review’ – Mufeed Sharholy, Kafeel Ahmad, Gauhar Mahmood and RC Trivedi

‘Waste Picker Cooperatives in Developing Countries’ – Martin Medina

‘The World’s Scavengers’ – Martin Medina

‘Statistics on Waste Pickers in Brazil’ – WIEGO