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On the Second-best Policy of Household's Waste Recycling

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  • Takayoshi Shinkuma

Abstract

This study analyzes the second-best household's waste recycling policy. If we assume the first-best economy with no illegal disposal or transaction costs, then unit pricing, an advance disposal fee and a recycling subsidy are required in order to achieve the social optimum such that both the sum of unit pricing and an advance disposal fee and the sum of unit pricing and a recycling subsidy are equal to the marginal disposal cost. Furthermore, the first-best outcome can also be obtained by a producer take-back requirement system. In the real economy, however, various factors prevent the first-best optimal outcome. In this study we consider two factors, one being the transaction cost associated with a recycling subsidy (or refund) and the other being illegal disposal by the consumer. If a recycling subsidy (or a deposit-refund system) is adopted, a transaction cost associated with it will be generated. Alternatively, if unit pricing is adopted, some of the consumed goods may be disposed of illegally. We show the complete trade-off between unit pricing and a recycling subsidy. In other words, we can not adopt unit pricing and a recycling subsidy simultaneously. As a result, there are three candidates for the second-best policy: unit pricing with an advance disposal fee, a deposit-refund system, and a producer take-back requirement system. Which of these three policies is the second-best policy will depend on the relative magnitude of the price of a recycled good and the marginal transaction cost associated with a recycling subsidy (or the refund in a deposit-refund system). Generally, if the price of a recycled good is positive and the marginal transaction cost is relatively high, unit pricing with an advance disposal fee is the second-best policy. However, where the price of a recycled good is negative and the marginal transaction cost is relatively high, a producer take-back requirement system is the second-best policy. Further, where the marginal transaction cost is relatively low, a deposit-refund system is the second-best policy, regardless of whether the price of a recycled good is positive or negative. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Takayoshi Shinkuma, 2003. "On the Second-best Policy of Household's Waste Recycling," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(1), pages 77-95, January.
    • Handle: RePEc:kap:enreec:v:24:y:2003:i:1:p:77-95
    DOI: 10.1023/A:1022842617469
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    1. Don Fullerton & Wenbo Wu, 2002. "Policies for Green Design," Chapters, in: Don Fullerton & Thomas C. Kinnaman (ed.), The Economics of Household Garbage and Recycling Behavior, chapter 5, pages 102-119, Edward Elgar Publishing.
    2. Don Fullerton & Thomas C. Kinnaman, 2002. "Household Responses to Pricing Garbage by the Bag," Chapters, in: Don Fullerton & Thomas C. Kinnaman (ed.), The Economics of Household Garbage and Recycling Behavior, chapter 4, pages 88-101, Edward Elgar Publishing.
    3. Don Fullerton & Thomas C. Kinnaman, 2002. "Garbage, Recycling, and Illicit Burning or Dumping," Chapters, in: Don Fullerton & Thomas C. Kinnaman (ed.), The Economics of Household Garbage and Recycling Behavior, chapter 2, pages 49-62, Edward Elgar Publishing.
    4. Palmer, Karen & Sigman, Hilary & Walls, Margaret, 1997. "The Cost of Reducing Municipal Solid Waste," Journal of Environmental Economics and Management, Elsevier, vol. 33(2), pages 128-150, June.
    5. Choe, Chongwoo & Fraser, Iain, 1999. "An Economic Analysis of Household Waste Management," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 234-246, September.
    6. Palmer, Karen & Walls, Margaret, 1997. "Optimal policies for solid waste disposal Taxes, subsidies, and standards," Journal of Public Economics, Elsevier, vol. 65(2), pages 193-205, August.
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