Public policies for household recycling when reputation matters

Abstract

An important strand in the economic literature focuses on how to provide the right incentives for households to recycle their waste. A growing number of studies, inspired by psychology, seek to explain waste sorting and pro-environmental behavior, and highlight the importance of social approval and the peer effect. The present theoretical work explores these issues. We propose a model that considers heterogeneous households that choose to recycle, based on three main household characteristics: their environmental preferences, the opportunity costs of their tax expenditures, and their reputations. The model is original in depicting the interactions among households, which enable them to form beliefs about social recycling norms, allowing them to assess their reputation. These interactions are explored through Agent-based simulations. We highlight how individual recycling decisions depend on these interactions and how the effectiveness of public policies related to recycling are affected by a crowding-out effect. The model simulations consider three complementary policies: provision of incentives to recycle through taxation; provision of information on the importance of selective sorting; and an ‘individualized’ approach that takes the form of a ‘nudge’ using social comparison. Interestingly, the results regarding these policies emerging from households interactions at the aggregate level cannot be fully predicted from “isolated” individual recycling decisions.