THE ECONOMICS OF RESIDENTIAL SOLID WASTE MANAGEMENTJune, 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 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 RESIDENTIALSOLID WASTE MANAGEMENTABSTRACTThe Economics of Residential Solid Waste ManagementA. Policy Directives in the United StatesB. Policy Directives in EuropeC. Developing NationsB. A Change in Ease of Recycling ()D. A Change in E. Other ConsiderationsTABLE 3: EMPIRICAL ESTIMATES OF THE EFFECT OF UNIT-PRICINGTHE ECONOMICS OF RESIDENTIAL SOLID WASTEMANAGEMENT June, 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 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 NationalBureau of Economic Research.THE ECONOMICS OF RESIDENTIAL SOLID WASTE MANAGEMENTABSTRACTThis 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 leversto 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 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 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 thousandsof 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 wastepolicy 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 WasteThe 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. Althoughthe 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 asingle private firm. Growth in the number of programs has steadied of late.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 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 obtainedfrom 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