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Resource and Waste Taxation in the Theory of the Firm with Recycling Activities

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  • Klaus Conrad

Abstract

The management of solid waste has become an urgent problem in nations with a great population density. Accordingly, waste reduction through source reduction and recycling has become increasingly important. Our purpose is to show how prevention, recycling and disposal of waste could be part of a theory of the firm. We first derive efficient production functions from production processes with waste as a by-product. Waste obtained as new scrap can partially be recycled by using additional inputs in order to cut back the purchase of virgin material. Waste not completely recyclable will leave the firm as disposal which also entails cost to the firm. We use the dual cost function approach to develop a theory of the firm under solid residual management. Since the producer does not bear the full cost of disposal, there will be a bias toward virgin materials and away from recycling. The goal of the government is to stimulate the firms to recycle with respect to the preservation of exhaustible resources. An incentive to recycle is a tax on resources or on waste. In order to determine the tax levels the government maximizes welfare subject to the dynamic constraint for decumulation of land fill for waste deposits. This gives the user cost and its time profile for taxing waste disposal or virgin material. In a comparative statics analysis we compare the effect of taxes on waste vs. virgin material on effort to produce in a resource saving manner, on the quantity of recycled material, on output, and on the reduction of waste. Since the impact of environmental regulation on employment is important, our model detects seven effects on labor demand as part of resource conservation policy. We finally carry out a comparative statics analysis of waste intensive firms operating in different market structures. Of interest is the impact of a resource or waste taxation on market volume, on the number of firms, on resource saving effort, and on profit. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Klaus Conrad, 1999. "Resource and Waste Taxation in the Theory of the Firm with Recycling Activities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(2), pages 217-242, September.
    • Handle: RePEc:kap:enreec:v:14:y:1999:i:2:p:217-242
    DOI: 10.1023/A:1008301626219
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    References listed on IDEAS

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    1. Roumasset James & Wada Christopher A, 2011. "Ordering Renewable Resources: Groundwater, Recycling, and Desalination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, May.
    2. Jannett Highfill & Michael McAsey, 2001. "Landfilling Versus ``Backstop'' Recycling When Income Is Growing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(1), pages 37-52, May.
    3. Anni Huhtala & Eva Samakovlis, 2002. "Does International Harmonization of Environmental Policy Instruments Make Economic Sense?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(3), pages 259-284, March.
    4. Mazzanti, Massimiliano & Zoboli, Roberto, 2008. "Waste Generation, Incineration and Landfill Diversion. De-coupling Trends, Socio-Economic Drivers and Policy Effectiveness in the EU," Sustainability Indicators and Environmental Valuation Working Papers 46651, Fondazione Eni Enrico Mattei (FEEM).
    5. Nazzal, Dima & Batarseh, Ola & Patzner, Joshua & Martin, Darren R., 2013. "Product servicing for lifespan extension and sustainable consumption: An optimization approach," International Journal of Production Economics, Elsevier, vol. 142(1), pages 105-114.
    6. Roumasset James & Wada Christopher A, 2011. "Ordering Renewable Resources: Groundwater, Recycling, and Desalination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, May.
    7. Karen Pittel, 2006. "A Kuznets Curve for Recycling," CER-ETH Economics working paper series 06/52, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Karen Pittel & Amigues Jean-Pierre & Thomas Kuhn, 2005. "Endogenous growth and recycling : a material balance approach," CER-ETH Economics working paper series 05/37, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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