THE ECONOMICS OF RESIDENTIAL SOLID WASTEMANAGEMENTJune, 1999byThomas C. KinnamanDepartment of EconomicsBucknell UniversityLewisburg, PA 17837andDon FullertonDepartment of EconomicsUniversity of Texas at AustinAustin, TX 78712We are grateful for financial support from the National Science Foundation and forhelpful comments from Scott Callan, Elbert Dijkgraaf, Henk Folmer, MollyMacauley, Karen Palmer, Michael Podolsky, Janet Thomas, and Tom Tietenberg.This paper is part of NBER's research program in Public Economics. Any opinionsexpressed are those of the authors and not those of the National Science Foundationor the National Bureau of Economic Research.-2-THE ECONOMICS OF RESIDENTIALSOLID WASTE MANAGEMENTABSTRACTThis paper provides a broad overview of recent trends in solid waste andrecycling, related public policy issues, and the economics literature devoted to thesetopics. Public attention to solid waste and recycling has increased dramatically overthe past decade both in the United States and in Europe. In response, economistshave developed models to help policy makers choose the efficient mix of policylevers to regulate solid waste and recycling activities. Economists have alsoemployed different kinds of data to estimate the factors that contribute to thegeneration of residential solid waste and recycling and to estimate the effectiveness ofmany of the policy options employed.Thomas C. Kinnaman Don FullertonDepartment of Economics Department of EconomicsBucknell University University of Texas at AustinLewisburg, PA 17837 Austin, TX [email protected] and [email protected] Economics of Residential Solid Waste Management1. Introduction The market for residential solid waste management and disposal hasexperienced 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 andutilized by the commercial and industrial sectors of the economy, residentialrecycling was limited to spontaneous collection drives by charitable organizations forold newspapers and aluminum cans. Today, 46% of Americans have access tomunicipal curbside recycling programs, many other Americans have local access todrop-off recycling facilities, and garbage is often transported tens, hundreds, or eventhousands of miles for disposal in a large regional landfill. Recycling has also becomemore popular in Europe and in other parts of the world.These market shifts have attracted the attention of economists who havedevoted significant attention to understanding the causes and impacts of these events.Economists have also participated in discussions aimed at shaping efficient solidwaste policy strategies. This survey article summarizes the economic literaturedevoted to household solid waste collection and disposal. The next section providesa brief historical introduction to these markets. Section 3 surveys the theoreticalliterature devoted to suggesting the best way to regulate garbage collection anddisposal. Section 4 follows with a summary of solid waste policies in place, and itsurveys the empirical studies devoted to those policies. Since household disposalchoices determine garbage and recycling totals, Section 5 develops a model ofhousehold behavior that generates hypotheses that are subsequently tested by theempirical economics literature.2. Recent Trends in Residential Solid WasteThe editors of Biocycle Magazine (Glenn, 1998) began an annual survey ofthe 50 states in 1989. Included in these surveys were state estimates of the quantityof solid waste landfilled, incinerated, and recycled in that state. Figure 1 summarizesthe 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 roughly85% in 1989 to just over 60% in 1997. This decrease was associated primarily withthe simultaneous increase in recycling. As illustrated in Figure 1, the United Statesrecycled nearly 30% of waste in 1997, up from just 10% in 1989.How were the states able to increase the recycling rate so dramatically overthis time period? The Biocycle surveys also show that the number of curbsidecollection programs in operation nationwide increased monotonically from just 1,000programs in 1989 to nearly 9,000 programs in 1997. Local governments administerall of these programs either by collecting the material directly or by contracting witha single private firm. Growth in the number of programs has steadied of late.-2-Economists have debated the extent to which the growth in curbside recyclingcan be attributed to economic factors such as increases in disposal costs or non-economic factors. Although this debate is explored more thoroughly below, we nowintroduce two important economic variables at play. Figure 2 presents averagetipping fees in several states, and Figure 3 presents average prices of recycledmaterials in the United States over the past 10 years. Tipping fee data were obtainedfrom Biocycle’s annual survey of the 50 states (Glenn, 1998). Rather than presentingthe average for each state, Figure 2 illustrates the past 10 years’ nominal tipping feefor one state from each region of the country. Two lessons can be drawn from thisfigure. First, the overall trend for tipping fees is weakly positive. But accounting forincreases in the general price level, the real tipping fee may not have changed muchover the past decade. Therefore, attributing the national rise in curbside recycling toincreases 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 inother regions of the country. And, indeed, curbside recycling programs have becomepopular in the northeast. Perhaps, then, tipping fees have played an indirect role inencouraging recycling.The second variable of interest to economists is the price paid for recycledmaterials. 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 alsobe learned from Figure 3. First, when accounting for increases in the general pricelevel, the prices of recycled materials have remained rather constant over the pastdecade (Ackerman, 1997). Second, prices of recycled materials are highly variableover time. For old