ABSTRACT

To get at the essence of recycling, let us consider a farmer who produces two things, broccoli and empty cola bottles. With the broccoli, the farmer must decide whether to take it to market or discard it. This broccoli decision is easy. The farmer checks the market price of broccoli (p), subtracts the cost of transporting the broccoli there (t), and checks to see if the net profit of broccoli sales (p – t) is greater or less than the net profit of disposal (–d), where d is the disposal cost. For most products (such as this broccoli) and for most producers (such as this farmer), most of us have a lot of faith that the p, t, and d are socially meaningful prices. If p is set in a competitive market, it is set at the intersection of supply and demand and hence represents both the marginal willingness to pay of other consumers for broccoli and the marginal cost of other farmers in producing broccoli. Thus p represents the social value of a marginal unit of broccoli. If t is also set in a competitive market, it reflects the resources needed for the transportation. If the farmer chooses to discard the broccoli, a private hauler would have to be hired from a competitive hauling industry, and this cost, d, would also reflect resource costs-provided the landfill to which the broccoli is headed charges a tipping fee that covers its marginal social cost. All that is straight out of an introductory economics course.