Source of information: http://www.colby.edu/economics/faculty/thtieten/ec476/Fullerton.pdf
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.
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 noneconomic 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.