chapter  5
25 Pages


A SECOND SOURCE of market inefficiency is the price system's failure to incorporate disposal cost in product price. There is a certain alchemy in traditional economic theory. Economic systems are modeled in which goods are produced, consumed, and then vanish. What allows this to happen is the assumption that unwanted material can be disposed of at zero cost. Of course materials do not really vanish, but unwanted materials do "vanish" in an economic sense if they can be disposed of at zero cost. Correspondingly, there is little inefficiency when disposal costs are very low.