An Economic Assessment of Market-Based Approaches to Regulating the Municipal Solid Waste Stream

Abstract

In the late 1980s and early 1990s, it was widely reported that the United States faced a solid waste crisis. Existing landfills were reaching capacity or being shut down because of more stringent regulations while waste volumes were continuing to rise. At the time, several market-oriented policy analysts advocated the adoption of variable rate charges for mixed refuse in conjunction with curbside pick-up of recyclables (without charge) as a means of reducing waste volumes and diverting recyclable material to more valuable uses. During the course of the past decade, such policies have been adopted widely throughout the United States - approximately 20 percent of the U.S. population now face variable rate charges for mixed refuse collection. Even more have curbside collection of recyclable materials. This article collects and reviews empirical studies evaluating the effects of variable rate pricing. It finds that these policies have been quite effective as a means of boosting diversion rates beyond the levels that can be achieved through curbside collection of recyclables alone. The overall cost-benefit analysis of such programs is modestly favorable. Since many states and communities have committed to achieving specified waste diversion targets, variable rate policies have been a cost effective policy tool. The experience with variable rate policies represents a promising example of non-coercive, information-oriented government intervention. With a relatively small budget and no authority to impose household solid waste policy on local governments, EPA has been remarkably successful at developing and diffusing effective solid waste management policies. The economic theory underlying variable rate pricing has proven, after some tinkering at the implementation stage, to be quite workable in practice. In fact, the practical realities of implementing charges have shown that theoretical perfection in terms of getting the prices right is less important in the grand scheme than keeping the transaction costs manageable. Looking forward, variable rate pricing can be expected to become even more economically advantageous as recycling markets continue to mature, landfill tipping fees rise, and improved technologies for curbside collection, monitoring, billing, and measuring waste develop.