Garbage, Recycling, and Illicit Burning or Dumping
Don Fullerton, Thomas C. Kinnaman
NBER Working Paper No. 4374 (Also Reprint No. r2024)
Additional solid waste disposal imposes resource and environmental costs, but most residents still pay no additional fee per marginal unit of garbage collection. In a simple model with garbage and recycling as the only two disposal options, we show that the optimizing fee for garbage collection equals the resource cost plus environmental cost. When illicit burning or dumping is a third disposal option, however, the optimizing fee for garbage collection can change sign. Burning or dumping is not a market activity and cannot be taxed directly, but it can be discouraged indirectly by a system with a tax on all output plus a rebate on proper disposal either through recycling or garbage collection. This optimizing fee structure is essentially a deposit-refund system. The output tax helps achieve the first-best allocation even though it may affect the choice between consumption and untaxed leisure, because consumption leads to disposal problems while leisure does not.
Published: Journal of Environmental Economics and Management, vol. 29, no. 1, pp. 78-91, (July 1995).