We are grateful for financial support from the National Science Foundation and for helpful comments from Scott Callan, Elbert Dijkgraaf, Henk Folmer, Molly Macauley, Karen Palmer, Michael Podolsky, Janet Thomas, and Tom Tietenberg. This paper is part of NBER's research program in Public Economics. Any opinions expressed are those of the authors and not those of the National Science Foundation or the National Bureau of Economic Research.
THE ECONOMICS OF RESIDENTIAL
SOLID WASTE MANAGEMENT
This paper provides a broad overview of recent trends in solid waste and recycling, related public policy issues, and the economics literature devoted to these topics. Public attention to solid waste and recycling has increased dramatically over the past decade both in the United States and in Europe. In response, economists have developed models to help policy makers choose the efficient mix of policy levers to regulate solid waste and recycling activities. Economists have also employed different kinds of data to estimate the factors that contribute to the generation of residential solid waste and recycling and to estimate the effectiveness of many of the policy options employed.
Thomas C. Kinnaman Don Fullerton
Department of Economics Department of Economics
Bucknell University University of Texas at Austin
Lewisburg, PA 17837 Austin, TX 78712
firstname.lastname@example.org and NBER
The Economics of Residential Solid Waste Management
The market for residential solid waste management and disposal has experienced dramatic changes over the past 20 years. In the early to mid 1970’s, most towns used local garbage dumps. Even though recycling was well known and utilized by the commercial and industrial sectors of the economy, residential recycling was limited to spontaneous collection drives by charitable organizations for old newspapers and aluminum cans. Today, 46% of Americans have access to municipal curbside recycling programs, many other Americans have local access to drop-off recycling facilities, and garbage is often transported tens, hundreds, or even thousands of miles for disposal in a large regional landfill. Recycling has also become more popular in Europe and in other parts of the world.
These market shifts have attracted the attention of economists who have devoted significant attention to understanding the causes and impacts of these events. Economists have also participated in discussions aimed at shaping efficient solid waste policy strategies. This survey article summarizes the economic literature devoted to household solid waste collection and disposal. The next section provides a brief historical introduction to these markets. Section 3 surveys the theoretical literature devoted to suggesting the best way to regulate garbage collection and disposal. Section 4 follows with a summary of solid waste policies in place, and it surveys the empirical studies devoted to those policies. Since household disposal choices determine garbage and recycling totals, Section 5 develops a model of household behavior that generates hypotheses that are subsequently tested by the empirical economics literature.
2. Recent Trends in Residential Solid Waste
The editors of Biocycle Magazine (Glenn, 1998) began an annual survey of the 50 states in 1989. Included in these surveys were state estimates of the quantity of solid waste landfilled, incinerated, and recycled in that state. Figure 1 summarizes the total use of these three methods of waste removal over the past decade. Although the percentage of household solid waste incinerated remained near 10% over the last decade, the percentage disposed in a landfill decreased from roughly 85% in 1989 to just over 60% in 1997. This decrease was associated primarily with the simultaneous increase in recycling. As illustrated in Figure 1, the United States recycled nearly 30% of waste in 1997, up from just 10% in 1989.
How were the states able to increase the recycling rate so dramatically over this time period? The Biocycle surveys also show that the number of curbside collection programs in operation nationwide increased monotonically from just 1,000 programs in 1989 to nearly 9,000 programs in 1997. Local governments administer all of these programs either by collecting the material directly or by contracting with a single private firm. Growth in the number of programs has steadied of late.
Economists have debated the extent to which the growth in curbside recycling can be attributed to economic factors such as increases in disposal costs or non-economic factors. Although this debate is explored more thoroughly below, we now introduce two important economic variables at play. Figure 2 presents average tipping fees in several states, and Figure 3 presents average prices of recycled materials in the United States over the past 10 years. Tipping fee data were obtained from Biocycle’s annual survey of the 50 states (Glenn, 1998). Rather than presenting the average for each state, Figure 2 illustrates the past 10 years’ nominal tipping fee for one state from each region of the country. Two lessons can be drawn from this figure. First, the overall trend for tipping fees is weakly positive. But accounting for increases in the general price level, the real tipping fee may not have changed much over the past decade. Therefore, attributing the national rise in curbside recycling to increases in the tipping fee is difficult to support with such casual use of data. However, tipping fees in the northeastern region (New Jersey) are greater than in other regions of the country. And, indeed, curbside recycling programs have become popular in the northeast. Perhaps, then, tipping fees have played an indirect role in encouraging recycling.
The second variable of interest to economists is the price paid for recycled materials. The Bureau of Labor Statistics’ data on the prices of corrugated cardboard, old newspaper waste, and scrap aluminum appear in Figure 3. Two lessons can also be learned from Figure 3. First, when accounting for increases in the general price level, the prices of recycled materials have remained rather constant over the past decade (Ackerman, 1997). Second, prices of recycled materials are highly variable over time. For old newspaper, six spikes have appeared over the past 30 years (not all are illustrated in Figure 3). The most recent spike was in 1995 when the price for old newspaper (and many other materials) hit all-time highs. This latest spike has been attributed to new recycled-content laws passed by several state governments (Ackerman, 1997). But overall, these trends do not appear to support the argument that economic forces are responsible for the growth in curbside recycling. This debate is conducted more systematically in economic papers reviewed below.
The dramatic increase in the number of curbside recycling programs in operation in the United States could instead be a function of non-economic influences such as changes in voter tastes for the environment or purely political concerns. Misinformation may have contributed to the public’s perception of a shortage of landfill space. This perception may have emerged in 1987, when the barge "Mobro", loaded with Long Island garbage, was unable to unload its cargo after repeated attempts (see Bailey, 1995 for a discussion of the incident). A wave of state and local legislation encouraging or mandating recycling was passed soon after this incident.
Is the United States running out of landfill space? Available landfill capacity is difficult to quantify, but the number of landfills in operation can be ascertained and reported quite easily. Figure 4 illustrates the number of landfills (in thousands) operating each year in the United States over the past decade. This number has been steadily decreasing by about 500 landfills each year. Voters could have confused these data with a national shortage in landfill space (Bailey, 1995). While the number of landfills has been steadily decreasing over the past 10 years, the estimated capacity of remaining landfills has been steadily rising. Based on state-reported estimates (also illustrated in Figure 4), the remaining capacity of landfill space has doubled from roughly 10 years of remaining capacity in 1988 to 20 years in 1997.
The reason for these dual trends has been the replacement of small local town dumps with large regional sanitary landfills. This trend is due mostly to Subtitle D of the Resource Conservation and Recovery Act (RCRA) of 1976. This law was designed to reduce the negative externalities associated with garbage disposal. This law imposed technology-based standards on the construction, operation, and closure of solid waste landfills. Landfills are now required to install thick plastic linings along the base, collect and treat leachate, monitor groundwater, and cover garbage within hours of disposal. Because the fixed costs of constructing and operating a landfill have increased, cost-minimizing landfill sizes increased and fewer landfills have been built. The trend towards large regional landfills may also have been brought on by heightened public awareness over the siting of a landfill in their “back yard”. Expanding an existing landfill could be politically more feasible than constructing a new one.
A final general development over the past decade has been the slight increase and subsequent decline of incineration as a method of garbage disposal. Figure 5 illustrates the number of incinerators in operation in the United States over the past decade. Incineration, once considered a dual solution to the solid waste and energy crises, reached a peak in 1991 when 170 incinerators operated nationally. Since then, the number of incinerators in operation has gradually decreased. This decline has been attributed to a number of factors, but most notably the quantity of garbage available to incinerators became lower than expected. If fixed costs are high, then average costs can be reduced with an increase in garbage throughput. But incinerators could not lower tipping fees to levels necessary to encourage more garbage without incurring financial losses. Therefore, many local governments passed laws requiring all local garbage be brought to the incinerator, effectively giving the incinerator monopsony power over local garbage. But the Supreme Court struck down these laws, exposing the incineration industry to competition from cheaper landfills. The Supreme Court dealt a second blow to the incineration industry when it ruled that incinerator ash is toxic and must be disposed in an expensive toxic waste landfill. The increased use of recycling in the early 1990’s further reduced the quantity of garbage available to incinerators, adding to their financial dilemmas. Finally, policymakers were not eager to rescue the industry once the public began to oppose the resulting air pollution emitted by incinerators.
Where land is scarce, however, incineration has become a more viable option. The northeastern portion of the United States incinerates 40% of its waste. Incineration is also popular in Japan and several European countries where population densities are large and land values are high. Table 1 indicates the percentage of waste that is landfilled in several European countries in the middle 1980’s (the remaining portion is incinerated). Greece, Ireland, and the U.K. rely almost exclusively on landfills. But Switzerland, Sweden, and Denmark rely on incineration to manage the bulk of their garbage. Facing less competition from land-intensive landfills, incinerators in these countries as well as in the Northeast region of the United States can capture the economies of scale necessary to keep the average costs of incineration down (Halstead and Park, 1996). But even though many countries rely heavily on incineration, Brisson (1997) finds the private and full external costs of incineration exceed those associated with landfill disposal in most European countries.
3. The Optimal Policy in the Theoretical Literature
This section reviews the economic literature devoted to designing solid waste management policies to achieve the efficient quantity of garbage and recycling. A skeletal model is developed here to frame discussion of optimal policy design. Notation developed for this model will be used throughout this review.
Assume that N identical households each maximizes utility that is defined over consumption (c). Consumption produces waste that must either be disposed as garbage for collection at the curb (g) or recycled (r). We use c = c(g, r) to represent the various combinations of g and r that are consistent with any particular level of consumption. Given prices paid for consumption (pc), and garbage collection (pg), and received for recycled materials (pr), the household with income (y) will make disposal decisions to maximize utility (u),
u = u(c) = u[c(g, r)]
subject to the budget constraint,
y = pcc(g, r) + pgg - prr.
Producers in the model choose virgin (v) and recycled (r) inputs to produce c according to the production function c = f(v, r). Given input prices pr and pv (for recycled and virgin materials, respectively), the producer chooses inputs to maximize profit,
= pcf(v, r) - pvv - prr.
Firms in this model would employ virgin and recycled materials so that the ratio of input prices equals the ratio of marginal products. Households would choose between garbage and recycling in a similar manner. In fact, it is easy to show that since agents in this simple model internalize all of the costs and benefits of their choices, resources are allocated efficiently and the optimal quantities of garbage and recycling are produced. But the total amount of solid waste disposed (G = Ng) could emit foul odor, pollute groundwater, create an eyesore, or contribute to climate change.1 Household utility could be impacted by these effects, so assume now that u = u(c, G), where uG < 0. Under this assumption, households fail to internalize the full social costs of their disposal decisions. Too much garbage and too little recycling is produced by a decentralized economy.
In order to internalize disposal costs, economists have suggested several tax and subsidy schemes. This section will review the economic literature devoted to designing the tax/subsidy policy that can achieve the efficient allocation of resources in the presence of external costs from garbage disposal. Households could be taxed on each unit of garbage disposed (at rate tg) or subsidized for their recycling effort (at rate shr). Households could also be required to pay an advanced disposal fee at the time of purchase (tc). Under these policy schemes, households maximizes utility,
u = u[c(g, r), G]
subject to the amended budget constraint,
y = (pc+tc)c(g, r) + (pg+tg)g - (pr+shr)r.
The producer’s use of virgin material could be taxed (tv), or use of recycled materials could be subsidized (sfr), resulting in the profit function,
= pcf(v, r) - (pv+tv)v - (pr-sfr)r.
Economic research reviewed below has found that various combinations of these policies (tc, tg, shr, sfr, tv) can encourage a decentralized economy to achieve an efficient allocation of resources. Command and control policies such as mandatory household recycling ordinances and minimum recycled-content standards on producers can also achieve efficient outcomes in theory. But economists rarely support such forms of policy because the information required to achieve efficient outcomes is not likely to be available to policymakers. The literature devoted to the study of command and control policies is not rich.
The most direct approach to internalizing the external costs of garbage disposal is to tax each bag of garbage presented by the household (tg). Most households have traditionally either paid for garbage removal with a flat monthly or quarterly fee, or through local property or income taxes. Households that contribute large quantities of garbage therefore pay the same as a household that contributes smaller quantities, so the cost per bag (pg+tg) is zero, even though the social marginal cost of that extra bag is greater than zero. The implementation of a tax (also called a user fee) on each bag of garbage can require households to internalize the social marginal collection and disposal costs.
Using a panel of twelve cities with direct pricing, Jenkins (1993) estimates that pricing garbage according to its social marginal cost would reduce the quantity of garbage produced by households and therefore improve social welfare by as much as $650 million per year, roughly $3 per person per year. Fullerton and Kinnaman (1996) use household data and also estimate the potential benefits of marginal cost pricing to be in the neighborhood of $3 per person per year. Podolsky and Spiegel (1998) study a cross-section of towns in New Jersey and estimate the economic benefits of charging per unit of garbage to be as great as $12.80 per person per year.
One particular advantage of taxing garbage directly (employing a user fee) is that other tax instruments discussed above are unnecessary for achieving the efficient allocation of resources (Fullerton and Kinnaman, 1995, and Palmer and Walls, 1994). Households may recycle, compost, or engage in source-reduction according to the private costs they face. As long as households face the full social cost of their disposal decisions, they will make those decisions efficiently. Any increase in recycling can reduce the price of recycled materials, making these materials more attractive to manufacturers without a direct tax on virgin materials or subsidy to recycling. In fact, Dinan (1993) finds that a tax on virgin materials (tv) in combination with a user fee would not be efficient, since the same material is effectively taxed twice. Another advantage of taxing garbage directly is that the only information needed by the local policy maker is the full social cost of each bag of garbage. Repetto et al. (1992) estimate this cost to be $1.43-$1.83 per bag, depending on local private and social disposal costs.2 Finally, Fullerton and Wu (1998) show that pricing garbage according to its social marginal costs can also encourage firms to produce the optimal amount of packaging per unit and to engage in the optimal amount of green design.3
Perhaps in response to these arguments, an estimated 4000 communities in the United States have started to price garbage directly (Miranda and Bynum, 1999). These programs levy a fee on each bag of garbage collected from each household. Garbage collectors can exclude non-payers by utilizing some method of identifying who has paid, such as requiring households to purchase specially marked bags, tags, or stickers.
Several arguments against the use of direct marginal cost pricing of garbage have also appeared in the economics literature. First, taxing garbage may be problematic if illicit or illegal dumping on the part of households is encouraged.4 Second, the administrative costs of implementing the program may exceed the social benefits estimated above. Fullerton and Kinnaman (1996) estimate that the administrative costs of printing, distributing, and accounting for garbage stickers in Charlottesville, Virginia could exceed the $3 per person per year benefits mentioned above. Third, a uniform tax on all types of garbage may be inefficient if materials within the waste stream produce different social costs (Dinan, 1993). If, for example, the social cost of disposing flashlight batteries is greater than that of old newspapers, then the disposal tax on flashlight batteries should exceed that on old newspapers. But such a precise tax scheme is costly to administer.
To respond to these problems, Dobbs (1991) and Fullerton and Kinnaman (1995) develop models that suggest that if households have the option to litter or dump their garbage, and if the external costs of littered garbage exceeds that of legally-disposed garbage, then the optimal tax on legal garbage disposal (tg) could be negative. That is, legal garbage disposal should be subsidized. In fact, if the administrative costs of levying a tax on each bag of garbage are significant, then the optimal policy may involve subsidizing garbage at its full price (set pg+tg=0). Policymakers can instead implement other policies defined below to achieve efficient disposal choices.
If taxing or even pricing garbage directly is problematic, economists have studied whether the implementation of a tax on virgin materials (tv) can achieve the efficient allocation of resources in a world where garbage disposal produces external costs. Such a tax could increase producer’s demand for recycled inputs, drive up the price paid for recycled materials, and thus increase the economic benefits to households that deliver recyclable materials to secondary markets. Miedema (1983) finds that a tax on virgin materials (tv) set equal to the social marginal cost of disposing any resulting waste material produces welfare gains greater than would result from a subsidy on producer’s use of recycled materials (sfr), a direct tax on household solid waste (tg), or an advanced disposal fee (tc). The main advantage of virgin materials tax is that it both discourages the economy’s use of virgin materials (resulting in less subsequent solid waste) and encourages the development of the market for recycled materials.
Others studies have questioned the use of a tax on virgin materials. Dinan (1993) finds that although a tax on virgin materials encourages the use of recycled materials in industries where the recycled input is a substitute for the taxed virgin input, other industries that do not use the taxed virgin input will not increase demand for recycled materials. For example, farmers could use old newspapers for animal bedding, but a tax on paper manufacturer’s use of virgin wood pulp will not encourage this form of recycling. Dinan (1993) also suggests that a domestic tax on virgin materials does not encourage exporters to purchase recycled materials. Significant portions of recyclable paper are currently exported.
Palmer and Walls (1994) develop a model that suggests that although a tax on virgin materials can encourage the efficient mix of inputs, it can discourage production and consumption in the overall economy. The result is an inefficiently low quantity of garbage. Therefore, the virgin materials tax is only efficient when combined with a subsidy on the sales of final goods. Only for the special case where the marginal product of recycled materials is exactly one (1) can a tax on virgin materials lead to the efficient input mix and output level. Finally, both Fullerton and Kinnaman (1995) and Walls and Palmer (1997) find that as long as other policy options are available (namely a deposit/refund system discussed below), then a tax on virgin materials is only necessary to correct for any external costs associated with cutting or extracting the virgin material. The tax is not needed to correct for the external costs associated with garbage disposal.
Palmer and Walls (1994) find that a recycling subsidy (shr or sfr) by itself can indeed provide the efficient input mix (between virgin and recycled inputs), but it leads to excess production, consumption and waste. Therefore, the subsidy to recycling must be combined with a tax on consumption (tc). But the implementation of an advanced disposal fee (tc) by itself only encourages source reduction, not recycling. Only the combination of an advanced disposal fee and a subsidy to recycling encourages both source reduction at the time of production and recycling at the time of disposal (Palmer et al., 1997). This policy is essentially a deposit/refund system.5
Several economic studies have favored the use of deposit-refund systems to correct for the external costs associated with garbage disposal, including Dinan (1993), Dobbs (1991), Fullerton and Kinnaman (1995), Palmer and Walls (1994), Palmer et al. (1997), Fullerton and Wu (1998), and Atri and Schellberg (1995). To achieve the efficient allocation, the deposit is set equal to the social marginal cost of disposing the resulting material, and the optimal refund is set equal to the difference between the marginal external cost of garbage and the marginal external cost of recycling. If the external costs of recycling are zero, then the refund matches the deposit. The deposit could be levied either on the production or the sale of goods. As long as transaction costs are low, the refund can be given either to the households that recycle the materials or to the producers that use the recycled materials in production. If the refund is given to the households, then the supply increase will drive down the price of recycled materials to firms. If the refund is given to firms, firms will increase demand for recycled materials and drive up the price received by households (Atri and Schellberg, 1995). In addition, Fullerton and Wu (1998) find that the refund given under a deposit/refund system will encourage firms optimally to engineer products that are easier to recycle. Households will demand such products in order to recycle and receive the refund. This result is important since directly encouraging the recyclability of product design can be administratively difficult.
Economists have also discussed some implementation issues related to a deposit/refund system. Palmer and Walls (1994) argue that a deposit/refund system would be easier to implement than a tax on virgin materials with a subsidy to consumption (an alternative policy combination that could also achieve the efficient outcome). Firms could organize a strong defense against the implementation of a tax on virgin materials. Households may lack this political organization. Furthermore, the subsidy to recycling may earn the support of households with strong tastes for the environment. Also, less information is necessary to implement the deposit/refund system efficiently. The policy maker only needs to know the marginal social cost of waste disposal. The optimal deposit and refund need only be set equal to this value. The application of a virgin materials tax on the other hand requires information on each firm’s technical rate of substitution between recycled and virgin inputs. This type of information is normally not available to the policy maker (Palmer and Walls, 1994). If the administrative costs associated with operating the deposit/refund programs are high, then Dinan (1993) suggests that policymakers could single out products that comprise a large segment of the waste stream (newspaper) or that involve very high social marginal disposal costs (batteries). Palmer and Walls (1999) argue that a tax on produced intermediate goods combined with a subsidy paid to collectors of recycling would preserve the efficiency effects of a deposit-refund system but would be less costly to administer.
One “command and control” policy to receive the attention of environmental economists is a recycled content standard; a law requiring firms to employ a minimum portion of recycled materials in their products. Several states have passed such a law. Palmer and Walls (1997) point out the problems associated with a recycled content standard. First, recycled content standards can only achieve efficiency if carefully implemented with other policies. If recyclable materials are highly productive at the margin, but are not used because of their high price, then a recycled-content standard could increase production and therefore solid waste. A tax on consumption is also necessary. If recycled materials are unproductive on the margin, standards will decrease output (and solid waste) and will therefore require a subsidy to consumption to achieve efficiency. Their model also requires a tax on labor (the other input to production). Finally, the efficient implementation of a recycled-content standard requires information not ordinarily available to policy makers.
This section provided an overview of the economic literature on the best policy approaches to respond to the external costs of traditional garbage disposal. Although a direct tax on garbage disposal (tg) and a tax on virgin materials (tv) have been supported by some, the combination of an advanced disposal fee (tc) and a subsidy to recycling (sfr or shr) is supported by the majority of studies. The next section provides a survey of the current set of policies implemented by local, state, and the federal governments in the United States and across the world, and it discusses empirical lessons from the vast array of policies currently in place.
4. Solid Waste Policies - A Summary of Empirical Studies
This section provides a broad review of the various solid waste management policies implemented in the United States and abroad. The reader will quickly see that actual approaches used by policymakers often differ from the theoretical policy prescriptions detailed in the last section. The results of empirical economic papers related to each policy are discussed where available.
A. Policy Directives in the United States
1. Federal Government
The most influential disposal regulation passed by the Federal Government of the United States was the Resource Conservation and Recovery Act (RCRA) of 1976. Subtitle D of RCRA imposed technology-based standards on the construction, operation, and closure of solid waste landfills. Prior to RCRA, most every town in the United States had a local dump. These dumps were often formed near the edge of town, perhaps on a flood plain near a river.
Today’s regulated landfills are constructed with a base of several inches of various grades of plastic lining to prevent leachate from seeping. Underground plumbing systems capture and treat leachate, and local groundwater supplies are continuously monitored. In terms of operation, garbage must be covered with soil within hours of disposal to reduce foul odor, discourage pests, and reduce the risk of health hazards. Many landfills capture and burn methane to produce electricity. Access roads must be watered several times each day to prevent dust from heavy truck traffic from rising. These regulations have decreased substantially the external costs associated with garbage disposal, but have also increased average disposal costs from an estimated $9 per ton to $20 per ton (Beede and Bloom, 1995).
Even with the recent advances in the technology of landfill construction and operation, local environmental activist groups still often oppose the creation or expansion of landfills in their region. Landfills depress property values. Housing values have been estimated to rise by 6.2% for each mile (up to two miles) away from a landfill (Nelson et al., 1992, as cited in Beede and Bloom, 1995). Roberts et al. (1991) interviewed 150 households in Tennessee and estimated households were willing to pay $227 per year to avoid having a landfill nearby. Reported amounts increase with income, education, and dependency on well water for water consumption.
A second Federal Government initiative that has influenced the market for the collection and disposal of household solid waste is the subsidy of virgin material extraction in the United States. First, income earned by the timber industry has been taxed at the capital gains rate instead of the corporate income tax rate. Second, the depletion of minerals extracted can be deducted from earned income as a form of depreciation. Third, mineral exploration has traditionally been encouraged on public lands. Fourth, freight rates charged for recycled materials have often been higher than for their virgin counterparts. These various forms of favorable tax treatments may have, on the margin, encouraged firms to utilize virgin inputs over recycled inputs, perhaps resulting in the current underdevelopment of the market for recycled materials.
Through a variety of papers, economists have learned a great deal about the market for recyclable materials. For example, Nestor (1992) reports that firms that could purchase recyclable materials are often capital intensive. Most of the existing capital stock is suitable for the use of virgin material in production. Re-tooling these industries to accept recycled inputs could be expensive. She also estimates the paper industry’s price elasticity of demand for old newspapers. The short-run price elasticity of demand is estimated at only –0.0475. This elasticity increases to -0.0732 (1 year), -0.1009 (3 years), -0.1128 (5 years), and to –0.1216 in the “long run”. These estimates are inelastic because the newsprint industry in many countries is equipped for the use of virgin fiber. The short-run marginal cost to the firm of using substitute inputs is high. The implication of an inelastic demand is that policies aimed at increasing the supply of old newspapers could indeed reduce their price but will not effectively increase the quantity of newspapers recycled. Furthermore, the elimination of existing tax subsidies on virgin inputs in the United States, Nestor (1992) reports, will also have little impact on the quantity of old newspapers recycled. The more effective approach would involve subsidizing the firm’s purchases of capital equipment that would allow for the substitute use of both virgin and recycled inputs.
Anderson and Spiegelman (1977) also find the price elasticity of demand for scrap steel and old newspaper to be inelastic (-0.64 and –0.08, respectively). The elimination of tax advantages for virgin inputs is estimated to increase newspaper recycling by only 0.04% and scrap steel recycling by only 0.37%.6 Anderson and Spiegelman (1977) also forecast that a subsidy to the suppliers of scrap iron (a 15% depletion deduction) would decrease the price of scrap steel by 7.2% and increase its quantity demanded by 2.9%. A similar subsidy to wastepaper suppliers (of 18%) would decrease the price of old newspapers by 8.6% but increase the quantity recycled by only 0.57%. A $10 per ton subsidy to the purchasers of old newspaper is forecasted to increase the quantity of newspaper recycled by only 2.0%. The common theme found throughout these empirical studies is the relative unresponsiveness of quantity demanded for recycled inputs to its price. Policies designed to increase the supply of recycled materials may have little impact on the quantity of recycled materials used in production.
One explanation given for the resistance on the part of many firms to make capital improvements to allow for the use of recycled materials has been the uncertainty over obtaining a steady supply of recycled materials. Prior to the widespread use of municipal recycling programs, the market’s supply of recycled materials was highly variable. To determine whether tax or subsidy policies could stimulate the supply of recycled materials, several economists have estimated the effect of price on the quantity supplied. Most of these studies found the supply of recycled materials also to be inelastic. For example, Bingham et al. (1983) estimate the price elasticity of supply of glass (0.165), steel (0.372), and aluminum (0.730). Miedema (1976 - cited in Edwards and Pearce, 1978) also finds the price elasticity of supply of wastepaper to be inelastic (0.09). Ir Vander Kuil (1976 - cited in Edwards and Pearce, 1978) finds evidence that increases in the price of recycled materials simply shifts the source of the supplied materials from municipalities to volunteer scout groups.7 But now that municipal governments supply the industry with a steady and predictable stream of recycled materials, firms may find the environment more conducive to invest in capital equipment suitable for recycled inputs.
2. State Governments
RCRA also assigned to the states the responsibility of regulating the market for household solid waste collection and recycling. The logic behind this action was based on the inherent differences in industry practices and environmental conditions across the states (Callan and Thomas, 1997). Delegating disposal authority to the states has resulted in a wide variety of policy approaches. Table 2 provides a glance at the policies enacted by each of the 50 states and the District of Columbia to increase recycling. The most common state action is to set a goal for recycling as a percentage of the solid waste stream. These goals range from 20% in Maryland to 70% in Rhode Island. The laws are ceremonious, for the most part, since they rarely state the consequences of falling short. In fact, the strategy employed by many states facing a failure to achieve the goal is to delay the deadline. Kinnaman and Fullerton (1997) find no significant impact of these goals on recycling quantities.
States have also passed laws that set recycling guidelines for municipalities within the state. The strongest law requires all municipalities to implement curbside recycling programs and to pass local ordinances making household participation in the recycling program mandatory. Seven states, including Pennsylvania and New Jersey, have passed such laws. Seven other states have passed similar laws requiring municipalities to offer recycling programs to households, but do not require the implementation of mandatory ordinances. Finally, eight states have set recycling goals for each town or county to satisfy, but allow each town or county to decide how to go about achieving the goal.
In exchange for these various mandates, 34 states provide grants to localities to help finance the costs of recycling expenses. For example, in Pennsylvania, each municipality receives a state grant that is based on the total quantity of materials recycled. Although economists have not devoted attention to estimating the incidence of these various forms of state recycling mandates, anecdotal evidence indicates the laws are costly but have had a dramatic impact on the number of municipal recycling programs operating within these states.
An approach taken by 23 states to regulate household solid waste is to prevent yard waste from being disposed in landfills. Large composting facilities are usually established to accommodate yard waste more cheaply than disposal in landfills. Several other states have passed laws preventing materials such as automobile tires, batteries, motor oil and old appliances from entering landfills (not presented in Table 2). In one highly publicized example, the state of Maine banned the disposal of aseptic packaging (drink boxes) in landfills. The ban was repealed after a Tellus Institute study found them to be environmentally friendly relative to other drink containers (Ackerman, 1997).
The oldest policy implemented at the state level is deposit-refund systems for empty beverage containers. The state of Oregon was the first to pass this form of legislation in 1983. Eight other states have followed suit, though no state has implemented a new deposit-refund system since the early 1980’s.
States quickly learned that their policies aimed at stimulating the supply of recyclable materials produced a glut of recycled materials (see a review of economic research on this topic above). To help balance the market, states began to implement policies designed to stimulate the demand for recycled materials. Twenty-nine states provide tax credits to encourage the production of new recycling plants, fifteen states provide low-interest loans for the same, and 29 states require government offices and in some cases private firms to purchase a minimum of their inputs from recycled products. As mentioned above, Palmer and Walls (1997) find recycled-content standards to be a difficult policy to implement and administer.
A final area of state intervention involves the use of restrictions on shipments of solid waste imported from other states. The transition from local dumps to regional landfills also brought an increase in the amount of solid waste transported across state and national boundaries. Today, an estimated 8% of all waste generated in the United States is disposed in another state. A few states, especially Pennsylvania, Virginia, and those in the Midwest, have recently attempted to restrict the quantity of solid waste imported. Repeated attempts by these states to restrict the importation of garbage were struck down by the Supreme Court, which ruled that import restrictions violate the free flow of interstate commerce.8 More recently, several governors have petitioned Congress to pass Federal legislation imposing import restrictions on interstate garbage shipments. Congress has yet to pass such legislation.
The top importer of solid waste in the United States is Pennsylvania, followed by Ohio, Virginia, Illinois and Indiana. In 1996, Pennsylvania received its waste from New York (3,300,000 tons), New Jersey (3,100,000 tons), Maryland (819,000 tons), Delaware (261,000 tons) and Connecticut (141,000 tons). Overall garbage imports to Pennsylvania have increased from 3.8 million tons in 1993 to 7.9 million tons in 1996. Similar growth rates have emerged in other importing states.
One reason state governments are frustrated with imported garbage is that their states have devoted significant public resources to reducing the quantity of solid waste generated within the state. As discussed above, resources have been devoted to implementing curbside recycling programs, banning certain materials from being disposed in landfills, providing tax advantages and/or subsidized loans to commercial recycling activities, and distributing grants to help run local recycling services. State officials may wonder what the state has gained by these efforts if the saved landfill space is filled by imports from other states. For example, in 1996 the state of Pennsylvania recycled 1.9 million tons of solid waste, but imported 7.9 million tons.
Traditional economic theory suggests free trading of garbage is efficient since those states with a comparative advantage in garbage disposal can specialize in garbage disposal. Any policy that interferes with the free flow of garbage would therefore be socially costly. Ley et al. (1997) estimate the loss in total surplus resulting from various restrictions on the flow of garbage considered by Congress. First, a $1 per ton surcharge on imported garbage would result in a 4% decrease in the quantity of garbage traded and a loss of total surplus of only $0.02 per person. The implementation of caps on the quantity of garbage traded across state lines (caps consistent with a Senate bill passed in 1995 that would require a reduction in garbage imports to 65% of their 1993 levels after a prolonged introductory phase) results in a surplus loss of $10 per person. Finally, a law that restricted all trading of garbage would result in a $18 per person loss in surplus. This study assumes that all external costs associated with garbage disposal are internalized through the tipping fee.
Other economic arguments can be made that flow controls improve welfare. Copeland (1991) provides two arguments in favor of restrictions of garbage imports. First, governments in some states (or countries) may not adequately regulate the industry to ensure that the external costs of garbage disposal are internalized. Total welfare can improve if exports from a highly-regulated country are prevented from entering a weakly- regulated country. Since landfill regulations across the United States are uniform, this rationale is probably more appropriate to inter-country shipments of solid waste. Second, even if regulations are uniform across trading partners, Copeland argues that restricting garbage trade can still improve welfare if evading the regulations is easier in one area than another. Also, Macauley at al. (1993) explain that allowing landfills the option to practice third-degree price discrimination (for example, charging a greater fee on imported garbage relative to local garbage) can be welfare improving if these landfills operate in imperfectly competitive markets. A landfill that can lower prices to local customers (with relatively elastic demand curves for garbage disposal) without having to lower prices to importers (with more inelastic demand curves) can make the local landfill and local residents better off without making the rest of the world worse off.9
Interestingly, while many state governments have attempted to restrict out-of-state garbage, other local governments have attempted to prevent local garbage from being exported from the area. As discussed above, such restrictions on garbage flow were designed to help support local incinerators that levy tipping fees that often exceed those of neighboring landfills. The Supreme Court recently struck down the use of such export restrictions. Tawil (1999) estimated that this event did not impact the profit levels of the participating incinerators or waste-hauling firms. Perhaps entry into the waste management industry is easy, eroding any profits that could have followed the Supreme Court’s ruling. Finally, Podolsky and Spiegel (1999) argue that the existence of economies of scale in garbage disposal practices could in some cases merit restrictions on garbage exports. The local reduction in average disposal costs attributed to the increase in garbage brought on by the export restriction could exceed the increase in average disposal costs experienced by a distant site.
Public and academic attention devoted to the issue of flow controls may increase when the Fresh Kills Landfill on Staten Island closes in 2002. New York City currently disposes 13,000 tons per day (4.7 million tons per year) in the Fresh Kills Landfill, the largest landfill in the country. Given the recent 38% cut in New York City’s recycling budget, all signs indicate that New York City’s garbage will be exported to other states.
3. Local Governments
Markets for household solid waste collection and disposal were once decentralized. As cities began to develop, dumps often formed near the outskirts of each town, and households were typically responsible for transporting their own waste to this dump. To ensure that all garbage was removed from neighborhoods, and to help capture economies of density, many communities designating a single collector for household solid waste.
In the United States, this intervention has typically taken one of two forms. First, direct government provision meant that municipalities would purchase trucks, hire drivers, and define collection routes. The costs of this local service was typically financed out of general tax revenue or the issuing of monthly or quarterly bills to each household. Second, the local government could regulate a single private collector. The town could contract with a single firm to collect all garbage or it could award a franchise permission to collect garbage to a single private garbage collector. The main difference between these two latter forms is that under a franchise agreement the private collector bills the households rather than the town.
Town governments could also pass local ordinances requiring households to hire their own company. Although such competitive garbage systems still operate today, the single collector model is the norm. Dubin and Navarro (1988) estimate that 43% of communities in the United States rely upon contract or franchise agreements, 26% of municipalities operate municipal collection programs, and 30% rely on the competitive market.10
Economies of density suggest that a single collector could reduce the overall collection costs. Dubin and Navarro (1988) find that an increase in the population density by 100 persons per square mile decreases the average cost per ton of collected materials by $1.62. Kemper and Quigly (1976) estimate that competitive markets are 25% to 36% more expensive than a single collector, and that contract or franchise agreements reduce costs over municipal collections by another 13 to 30% (depending on the level of service). Stevens (1978) estimates that the contract or franchise agreements are 26% to 48% cheaper than a competitive private market and 27 to 37% cheaper than municipal provision (for cities over 50,000 population). Savas (1977) finds that municipal collection is 14% more costly than that by a single private firm. Bohm et al (1999) estimates that municipally-run curbside recycling programs are on average $82,000 more costly per year than private recycling programs. Finally, McDavid (1985) finds in Canada that public collection is 41% more costly than private collection. This difference is identified (by McDavid) to arise from the fact that workers in private firms receive productivity bonuses and private collectors are more likely to use larger trucks with smaller crew sizes.
Why don’t all communities employ the most efficient contract or franchise method? Dubin and Navarro (1988) find that the community’s choice of method depends upon the power of rent-seeking interest groups (such as labor unions) and the ideological preferences of the community. Conservative towns are more likely to rely on the free market than liberal towns, but liberal towns are more likely to use municipal collection rather than contract or franchise agreements.
Beyond the mere collection of household garbage, local governments have also attempted to influence the decisions of households to reduce the quantity of garbage collected and disposed. Drop-off and curbside recycling programs, unit-based pricing programs, and mandatory recycling ordinances have been passed. Although precise year-to-year data are unavailable, recent estimates indicate that over 9000 curbside recycling programs and 4000 unit-based pricing programs are currently in operation in the United States. Economic studies of the impact of these policies are summarized in Section 5 below.
At first, towns began to offer drop-off recycling services. Towns would usually purchase (or rent) a few large trailers, and would leave those trailers on municipal property, usually a parking lot or near the entrance of a park or other municipal property. Residents would voluntarily transport certain materials (usually newspaper, aluminum cans, and perhaps glass). Jakus et al. (1996) estimate that rural households devote an average of 90 seconds to recycle one unit of glass and one unit of old newspaper. Given the opportunity cost of household time, households paid $1.29 to recycle one pound of each material. Based on quantities recycled, Jakus et al. (1996) estimate that these households value local access to drop-off facilities at $5.78 per month.
As municipal governments gained expertise in the area of marketing recycled products, they began to implement curbside recycling programs. Curbside recycling programs decrease the household’s time and effort devoted to recycling. Households are expected to respond by recycling more, while municipal governments collect more, save disposal costs, and earn greater revenues from the sale of materials. The external costs of garbage collection and disposal could also decrease. Powell et al. (1996) find that the costs associated with vehicle emissions, traffic accidents, and road congestion are much less for curbside programs (4.99 British pounds sterling per ton recycled) than for drop-off programs (22.95 British pounds sterling per ton recycled). Direct estimates of the impact of the implementation of curbside recycling programs on household disposal choices are presented in Section 5 below, where the disposal choices of the household are carefully modeled.
Are economic or non-economic forces responsible for the recent increase in the number of municipal curbside recycling programs? The answer is probably both. Tawil (1995) and Kinnaman and Fullerton (1997) estimate the probability of implementing a curbside recycling program. Tawil (1995) employs a cross-sectional database of 80 towns in Massachusetts to estimate that every $1000 that can be saved by curbside recycling increases the probability of adoption by 11%. But Tawil (1995) also finds that a 1% increase in the percentage of households belonging to an environmental interest group increases the probability of adoption by 4%. Kinnaman and Fullerton (1997) also uncover economic reasons for implementing a recycling program. The likelihood increases by .78% with a $1 increase in the tipping fee (from the average tipping fee of $26) and by .39% with a 100-person increase per square mile (from the average density of 2,600) since average collection costs could decrease with the population density (Bohm et al, 1999). However, non-economic variables also partly explain the move towards recycling. A one-percent increase in the percentage of the population with a college degree (from the average of 23.6%) increases the likelihood that a town implements curbside recycling by 0.77%.
Several economic studies have estimated directly the benefits and costs of curbside recycling programs. Most suggest that the costs of operating a curbside program exceed the benefits resulting from the subsequent decrease in garbage disposal costs and sale of collected materials. Franklin Associates (1994) use national cost averages to estimate that recycling costs the municipality $9.52 to $16.53 per ton more than the cost of landfill disposal. Other studies suggest recycling is much more costly. The Solid Waste Association of North America (SWANA, 1995) estimates it costs an extra $74 per ton to recycle in a sample of 6 communities. Kinnaman (1998) estimates that a recycling program costs an extra $55.45 per ton recycled. This estimate includes costs to firms that are required by local ordinance to recycle. Carroll (1997) uses cross-section data from Wisconsin to estimate that recycling costs over $140 per ton, roughly $100 more than the cost of disposing the material. Only Hanley and Slark (1994) estimate recycling to be economically beneficial for the recycling of newspaper in Scotland. Palmer et al. (1997) estimate the benefits of recycling exceed the costs if the recycling rate is less than 7.5% of total waste. Recycling beyond this threshold is costly.
Kinnaman (1998) and Jakus et al. (1996) estimate the political/environmental benefits of curbside recycling through use of contingent valuation surveys. In a survey of 100 households, Kinnaman (1998) finds that households are on average willing to pay about $86 per year to keep curbside recycling of newspaper, glass, and aluminum. Jakus et al. (1996) estimate that households are willing to pay $69.36 per year for curbside collection of newspaper and glass. In addition, Tiller et al. (1997) estimate that suburban households that classify themselves as recyclers are willing to pay $11.74 per month for drop-off recycling facilities. If such preferences influence the decisions of local officials, then some of the trend towards greater recycling may in fact be attributable to political or environmental forces.
Other studies have estimated the costs of curbside recycling programs. Judge and Becker (1993) estimate that such costs increase with the addition of weekly collection (as opposed to monthly) of commingled (rather than separated) material collected from the porch of households (rather than the curb). Carroll (1997) uses self-reported cost figures from 1,103 programs in the state of Wisconsin to estimate that the costs of curbside recycling programs increase with the population, the tons recycled, and the number of materials collected. Interestingly, Carroll does not find a relationship between population density and collection costs. Bohm et al. (1999) estimate the costs of recycling with data based on a national survey of 1,021 municipal recycling programs in the United States. They find that the average costs of recycling decrease with the quantity collected, indicating economies of scale in collection. The total costs of recycling are estimated to increase with the cost of labor, the cost of capital, and if the municipality collects the material rather than a private company. Butterfield and Kubursi (1993) also find that recycling is costly. Laws that require or encourage recycling in Canada are found to decrease employment levels in several industries.
Huhtala (1997) and Brisson (1997) break down the private and external costs of recycling by type of material. Huhtala develops a dynamic model of waste accumulation with recycling as a backstop technology. The model is simulated using 1993 data from the Helsinki region. Results show that the social benefits of recycling paper, cardboard, and metal exceed the social costs. Glass and plastic do not pass the benefit/cost criterion. Brisson (1997) finds that the recycling of aluminum produces the greatest social benefits, followed by glass, ferrous metals, paper board, and rigid plastic.
As described above, several states in America have implemented recycling goals. England has also set a 50% recycling goal and the Netherlands set a goal for plastics of 42%. Palmer et al. (1997) and Huhtala (1997) estimate the optimal recycling rate. Using the lowest cost policy to encourage recycling (a deposit-refund of $45 per ton), Palmer et al. (1997) find that only 7% of solid waste should be recycled in the United States (where the social marginal cost of garbage disposal is estimated to be $33 per ton). Huhtala (1997) find the optimal recycling rate to be between 31% and 52% in Finland (where the private marginal cost of garbage disposal is estimated at $101/ton). In addition, Huhtala (1997) adds a contingent valuation estimate of the non-market benefits of recycling to the analysis. Such benefits include the value of less air pollution from solid waste incinerators plus an estimate of the “environmental friendliness of recycling”.
To ensure participation in the curbside recycling program, some local governments have passed a local ordinance making it illegal to include recyclable waste with regular garbage. As mentioned above, several states have passed laws requiring all towns to implement such mandatory ordinances. Kinnaman and Fullerton (1997) find mandatory recycling ordinances have little significant impact on recycling or garbage quantities. A plausible reason for this non-result is that municipalities do not adequately enforce their mandatory ordinances. Garbage collectors rarely inspect household garbage carefully. Any found violators usually just receive a written warning (Kinnaman, 1998). Duggal et al. (1991) find that communities that enforce mandatory recycling laws with fines experience no more recycling than towns without such enforcement.
Four thousand local governments have also implemented unit-based pricing programs. Most empirical papers devoted to user fees for garbage collection estimate the impact of the programs on household garbage and recycling behavior. These studies are discussed in Section 5 below. In addition to estimating the incidence of the programs, a few studies have estimated the likelihood such programs are implemented, the change in illegal dumping, and the benefits and costs of implementing a price-per-bag. Miranda and Aldy (1998) provide an in-depth analysis of the experiences of nine communities in the United States that implemented a price-per-bag.
Kinnaman and Fullerton (1997) and Callan and Thomas (1999) estimate the likelihood that a community will implement a unit-based pricing program. Kinnaman and Fullerton (1997) use data representing a national cross-section of 909 communities with and without unit-based pricing programs. They find that the likelihood increases with the local tipping fee, with the use of municipal (rather than private) resources to collect garbage, and with the education level of the community. Callan and Thomas (1999) find that the likelihood increases with household income, housing value, the age of the population, and whether the regional landfill is due to close within the next two years. They use data representing 317 communities in Massachusetts.
Available data rarely allow for direct comparisons between illegal dumping quantities before and after the implementation of unit pricing. Many economists have requested town officials to provide their opinion over whether they believe illegal dumping has increased. Many local officials have stated that it has, though many more have stated otherwise. Reschovsky and Stone (1994) and Fullerton and Kinnaman (1996) asked individual households whether they observed any change. In the former study, 51% of respondents reported an increase in dumping. The most popular method was household use of commercial dumpsters. For the 20% who admitted to burning trash, the authors were unable to confirm whether these burners did so in response to the program. Roughly 40% of the respondents to the Fullerton and Kinnaman (1996) survey indicated that illegal dumping had increased in response to the unit-pricing program. Many of these lived in the more densely populated urban areas of the city. Fullerton and Kinnaman (1996) also use survey responses with direct household garbage observations to estimate that 28% of the reduction of garbage observed at the curb was redirected to illicit forms of disposal. See Footnote 4 for a list of other papers that study the dumping issue.
Two types of unit-based programs have been implemented in the United States. Traditional bag or tag programs require households to pay for each additional bag of garbage presented at the curb for collection. The second program type requires households to pre-commit or “subscribe” to the collection of a specific number of containers each week. The household pays for the subscribed number whether these containers are filled with garbage or not. Many communities in California and Oregon have utilized subscription programs since early in the century. One advantage of subscription programs is that their direct billing systems may reduce administrative costs. Yet, economists believe the first type of user fee more truly represents marginal cost pricing. Kinnaman and Fullerton (1997) use city-wide data from over 700 communities to estimate that subscription programs have less of an impact than bag/tag programs on garbage and recycling quantities. Miranda and Aldy (1998) find that subscription programs can be effective if pricing applies to smaller trash containers. Nestor and Podolsky (1998) employ self-reported household data to estimate that subscription programs are about as effective as bag/tag programs at reducing garbage. Neither program is found to encourage source reduction in the presence of a curbside recycling program, since such programs subsidize recycling households' overall disposal practices.
B. Policy Directives in Europe
Many of the approaches taken above in the United States have also been pursued, to a greater or lesser extent, in other countries. For example, the United Kingdom has established a 50% recycling goal to be achieved by 2000. The current recycling rate in the UK is just 5% (Powell et al., 1996). To increase the recycling rate, the UK implemented credits for recycling and has been considering a tax on the disposal of solid waste in landfills. Seven other EC countries (Belgium, Finland, France, Germany, Italy, Luxenbourg, and the Netherlands) have implemented some variation of user fees for garbage collection. The UK rejected the idea of user fees due to the uncertainty of their effects. Also, deposit-refund systems for beverage containers have been implemented in Australia, Canada, France, Germany, and Switzerland. Germany has also implemented deposit-refund programs for detergent and paint containers.
Germany implemented a unique policy in 1991 called the “Law on Waste Management” that is designed to internalize the external costs of packaging choices by industry. This law requires the original product manufacturers to pay to recycle the packaging it produces even after the product is sold to retail firms or directly to consumers. The law also set an original recycling target of 80%. That is, firms would be required to recycle 80% of all packaging they produce. Amendments to the original legislation are expected to ease these targets to 60-70%.
Over 400 retail and packaging firms have combined with the large waste-hauling firms to create the Duales System of Deutschland (DSD). The purpose of this syndicate is to reduce the administrative costs associated with satisfying the minimum recycling standards. Rather than requiring that each bottle be delivered back to its original manufacturer, local waste management firms agree to collect for recycling all bottles of member organizations in exchange for payment from the DSD. Participating manufacturers identify their membership in the DSD by affixing a green dot on their packaging. In essence, the program becomes a national recycling effort operated by the DSD rather than by independent municipal governments, as is common in the United States.11
The collection, sorting, and marketing costs incurred by the waste management firms are paid by the DSD. The DSD then charges manufacturers according to the quantity and type of packaging used. For example, manufacturers pay the DSD $.82 for each pound of plastic packaging produced, $.27 per pound for aluminum, and only $.04 for each pound of glass. These charges represent the marginal cost to the DSD of collecting and sorting each type of material. The cost of glass is low because consumers traditionally separate and transport glass bottles themselves, these costs are paid by consumers and are therefore not internalized by the DSD or product manufacturers. Fullerton and Wu (1998) find that if the charges to manufacturers are set optimally, then the German Green Dot program can encourage firms to produce the optimal amount and type of packaging. The quantity of packaging consumed by households decreased by 4% following the implementation of the Green Dot program (Rousso and Shah, 1994)
The success of the Green Dot program in achieving the efficient quantities of garbage and recycling rests on two critical issues (Fenton and Hanley, 1995). First, households must be willing to separate materials for recycling. A mandatory deposit on non-refillable beverage containers gives consumers the incentive to return these forms of packaging. But lacking such incentives for other types of packaging, the household cannot be expected to recycle efficiently. Second, private collectors must recycle the materials. But in the absence of other regulations, the private collectors face private rather than social disposal costs. Thus, the collectors of recyclable material may find disposal in other countries cheaper than negotiating with a recycler to take the material.12 Palmer and Walls (1999) argue that replacing Extended Producer Responsibility programs (like the Green Dot program) with a combined tax on intermediate goods and a subsidy paid to the collectors of recycled materials could alleviate these problems while preserving the more desirable outcomes.
Countries within the European Union have implemented other versions of producer responsibility programs, but few have set recycling goals as lofty as Germany’s 60-70% target. Austria, Denmark, France, Italy, the Netherlands, and Sweden have made manufacturers at least partly responsible for the management of their packaging materials. The European Union itself has set a recycling target of between 50% and 75% to be met by the year 2000, and is watching the German experience carefully. The UK has dropped its national eco-labeling program but is cooperating with all other EU policy guidelines.