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Resource and Waste Taxation in the Theory of the Firm with Recycling Activities

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  • Klaus Conrad

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    Abstract

    The management of solid waste has become an urgent problem in nations with a great population density. Accordingly, waste reduction through source reduction and recycling has become increasingly important. Our purpose is to show how prevention, recycling and disposal of waste could be part of a theory of the firm. We first derive efficient production functions from production processes with waste as a by-product. Waste obtained as new scrap can partially be recycled by using additional inputs in order to cut back the purchase of virgin material. Waste not completely recyclable will leave the firm as disposal which also entails cost to the firm. We use the dual cost function approach to develop a theory of the firm under solid residual management. Since the producer does not bear the full cost of disposal, there will be a bias toward virgin materials and away from recycling. The goal of the government is to stimulate the firms to recycle with respect to the preservation of exhaustible resources. An incentive to recycle is a tax on resources or on waste. In order to determine the tax levels the government maximizes welfare subject to the dynamic constraint for decumulation of land fill for waste deposits. This gives the user cost and its time profile for taxing waste disposal or virgin material. In a comparative statics analysis we compare the effect of taxes on waste vs. virgin material on effort to produce in a resource saving manner, on the quantity of recycled material, on output, and on the reduction of waste. Since the impact of environmental regulation on employment is important, our model detects seven effects on labor demand as part of resource conservation policy. We finally carry out a comparative statics analysis of waste intensive firms operating in different market structures. Of interest is the impact of a resource or waste taxation on market volume, on the number of firms, on resource saving effort, and on profit. Copyright Kluwer Academic Publishers 1999

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    Bibliographic Info

    Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

    Volume (Year): 14 (1999)
    Issue (Month): 2 (September)
    Pages: 217-242

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    Handle: RePEc:kap:enreec:v:14:y:1999:i:2:p:217-242

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    Web page: http://www.springerlink.com/link.asp?id=100263

    Related research

    Keywords: disposal taxes; environmental regulation; recycling; taxation of depletable resources; waste accumulation;

    References

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    1. Morris Glenn E. & Holthausen Jr. Duncan M., 1994. "The Economics of Household Solid Waste Generation and Disposal," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 215-234, May.
    2. C. G. Plourde, 1972. "A Model of Waste Accumulation and Disposal," Canadian Journal of Economics, Canadian Economics Association, vol. 5(1), pages 119-25, February.
    3. Rousso, Ada S. & Shah, Shvetank P., 1994. "Packaging Taxes and Recycling Incentives: The German Green Dot Program," National Tax Journal, National Tax Association, vol. 47(3), pages 689-701, September.
    4. Don Fullerton & Thomas C. Kinnaman, 1993. "Garbage, Recycling, and Illicit Burning or Dumping," NBER Working Papers 4374, National Bureau of Economic Research, Inc.
    5. Smith, Vernon L, 1972. "Dynamics of Waste Accumulation: Disposal Versus Recycling," The Quarterly Journal of Economics, MIT Press, vol. 86(4), pages 600-616, November.
    6. Ready Mark J. & Ready Richard C., 1995. "Optimal Pricing of Depletable, Replaceable Resources: The Case of Landfill Tipping Fees," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 307-323, May.
    7. Fullerton, Don & Wu, Wenbo, 1998. "Policies for Green Design," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 131-148, September.
    8. Noel, Michael, 1978. "Resource extraction and recycling with environmental costs," Journal of Environmental Economics and Management, Elsevier, vol. 5(3), pages 220-235, September.
    9. Conrad, Klaus & Wang, Jianmin, 1993. "The effect of emission taxes and abatement subsidies on market structure," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 499-518.
    10. Anderson, Curt L., 1987. "The production process: Inputs and wastes," Journal of Environmental Economics and Management, Elsevier, vol. 14(1), pages 1-12, March.
    11. Anderson, Robert C. & Spiegelman, Richard D., 1977. "Tax policy and secondary material use," Journal of Environmental Economics and Management, Elsevier, vol. 4(1), pages 68-82, March.
    12. Ian M. Dobbs, 1991. "Litter and Waste Management: Disposal Taxes versus User Charges," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 221-27, February.
    13. Baumol, William J., 1977. "On recycling as a moot environmental issue," Journal of Environmental Economics and Management, Elsevier, vol. 4(1), pages 83-87, March.
    14. Dinan Terry M., 1993. "Economic Efficiency Effects of Alternative Policies for Reducing Waste Disposal," Journal of Environmental Economics and Management, Elsevier, vol. 25(3), pages 242-256, November.
    15. Rafael Lusky, 1976. "A Model of Recycling and Pollution Control," Canadian Journal of Economics, Canadian Economics Association, vol. 9(1), pages 91-101, February.
    16. Anni Huhtala, 1997. "A Post-Consumer Waste Management Model for Determining Optimal Levels of Recycling and Landfilling," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 301-314, October.
    17. Schlottmann, Alan, 1977. "New life for old garbage Resource and energy recovery from solid wastes," Journal of Environmental Economics and Management, Elsevier, vol. 4(1), pages 57-67, March.
    18. Keeler, Emmett & Spence, Michael & Zeckhauser, Richard, 1972. "The optimal control of pollution," Journal of Economic Theory, Elsevier, vol. 4(1), pages 19-34, February.
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    Cited by:
    1. Roumasset James & Wada Christopher A, 2011. "Ordering Renewable Resources: Groundwater, Recycling, and Desalination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, May.
    2. Karen Pittel, 2006. "A Kuznets Curve for Recycling," CER-ETH Economics working paper series 06/52, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Nazzal, Dima & Batarseh, Ola & Patzner, Joshua & Martin, Darren R., 2013. "Product servicing for lifespan extension and sustainable consumption: An optimization approach," International Journal of Production Economics, Elsevier, vol. 142(1), pages 105-114.
    4. Massimiliano Mazzanti & Roberto Zoboli, 2008. "Waste Generation, Incineration and Landfill Diversion. De-coupling Trends, Socio-Economic Drivers and Policy Effectiveness in the EU," Working Papers 2008.94, Fondazione Eni Enrico Mattei.
    5. Karen Pittel & Amigues Jean-Pierre & Thomas Kuhn, 2005. "Endogenous growth and recycling : a material balance approach," CER-ETH Economics working paper series 05/37, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    6. Jannett Highfill & Michael McAsey, 2001. "Landfilling Versus ``Backstop'' Recycling When Income Is Growing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(1), pages 37-52, May.
    7. Anni Huhtala & Eva Samakovlis, 2002. "Does International Harmonization of Environmental Policy Instruments Make Economic Sense?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(3), pages 259-284, March.

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