Trash Talking

The BBC asks 'should recycling be rewarded?' The obvious answer is: It depends. The question is analogous to 'should work be rewarded?' If a person is working to produce left handed monkey wrenches or deep-sea bath tubs then probably not. If they are working to grow food or build cars then the answer is likely to be yes. So it is with recycling. If recycling is a productive pursuit then people should be paid for it. Indeed markets perform this function well with other things. People do not generally go to work in the morning out of the goodness of their hearts or because the government fines the unemployed and rewards those in work, they go to work because market induce them to do so through the wage incentive. If recycling is indeed productive then markets should incentivize people to do it by offering payment. The question really is whether recycling is productive, whether it's more productive than the alternative uses of resources, and whether markets are providing the appropriate incentives given the answers to those questions.

As far as I am aware the reality is that household recycling is generally not productive in that it uses more scarce resources to collect, sort, clean and prepare recycled material for use in the production process than it does to acquire new material from scratch - and this is why there are few examples of firms being willing to pay for household waste. A notable exception in the past is payment in return for aluminium cans, though the reduction in the thickness of cans and thus the quantity of aluminium that can be derived from these has largely ended this practice. Of course, most people do recycle regularly without realizing it. Television is frequently punctuated with adverts for companies that will pay in return for scrap gold, and selling things we no longer want on eBay has become an obsession for some. This is also a good demonstration of how markets adjust prices in accordance with the scarcity (relative to the level of demand) for goods. If the materials needed to produce new aluminium cans were rare, nearing depletion, can manufacturers would be willing to pay handsomely for used cans to recycle. Equally, if the resources needed to produce new cans were plentiful they would be unwilling to pay large sums for used cans. And of course, everytime we sit down on our sofas, drive our cars or type at our keyboards we are recycling these things because it is more efficient to re-use them than to buy a new one every time.

This should not be confused with the question of whether people should be explicitly charged (e.g. by the kilogram) for the landfill waste they produce . Incentives need to be on both sides for people to make good choices.

Now, markets might not offer (an efficient level of) payment for recycling material if the benefits of using that material are not confined to the firm itself i.e. if recycling has a social benefit above and beyond the private benefit. For example, if producing glass bottles from scratch is extremely polluting (which dirties people's washing and gives them cancer) whilst recycling bottles produces no pollution, and all other costs and benefits are equal, it would be more efficient to recycle. Yet this might not occur because the bottle manufacturer does not feel (most) of the benefit of refraining from polluting the air. However, most of the materials that households can recycle are not especially polluting to produce. More over, the recycling process can often be quite polluting itself. It's quite uncertain then that recycling reduces social costs and that government action to incentivize it could be justified on that basis. Where there are social costs, it seems simpler and more comprehensive to impose fines (i.e. taxes) on the pursuit that is actually socially costly such as producing bottles in a polluting way. This would give firms the appropriate incentives, not just to recycle rather than produce in a polluting way, but to use other solutions such as making the process of producing new bottles cleaner, or inventing an alternative to bottles that can be made without pollution.

One commenter on the BBC's question replied that a reward scheme would be better than proposals to fine people who throw away 'too much' or recycle 'too little' because fines only induce people to fly-tip. This is an example of the unfortunate but all too common misconception that there is a substantive incentive difference between imposed costs and granted benefits.

Suppose we have determined some target for how much we would like people to throw away (to landfill/incineration etc) and two options are proposed on how to achieve this. The first is to fine people £10 each time they exceed the target. The second is to reward people £10 each time they meet (or fall below) the target. The commenter believes that the option to fine would cause people to fly-tip any waste they produce over the target level so as to avoid the cost of the fine, but the situation under the reward option is identical. The cost of going over target under both schemes is £10. By going over target with a system of fines, obviously a fine is incurred of £10. By going over target with a reward system, equally, you lose out on £10 you could have had. The effect is the same, either way there is £10 at stake in the decision.

Furthermore, because rewards must be paid for through taxation, and fine revenues spent on public goods*, a reward to cooperators (those who do not exceed the target level) is an implicit fine on rule-breakers because they will be taxed but not rewarded. Equally, a fine on rule-breakers is an implicit reward to cooperators because they will benefit from services provided with the revenues.

Having said that, there may be two small differences between fines and rewards. The first, and fluffier of the two, is the psychological effects of mathematically identical incentives being couched in terms of punishment and reward. This is a matter for psychologists, but given the impersonal nature of refuse laws I would be surprised if this had a significant effect. The second is that humans tend to experience diminishing returns to income. That is to say that we value the first £10 of income more than we value the next £10. If our daily income rises from £0 to £10 we move from starvation to survival, a very large benefit. If we move from £10 to £20 we move from (assuming we accrue income 7 days a week) survival to being able to rent a house, feed ourselves and pay some bills - a large move, but smaller than the previous. If we move from a daily income of £1,000 to £1,010 then the benefit is smaller still. This is relevant because the £10 we already have in our pocket is likely to be valued slightly more than the £10 of potential income that we might forgo by failing to meet the target. This would indicate that fines might be a slightly more cost-effective way of ensuring compliance than rewards because we might have to offer an £11 reward to create incentives equal to those of a £10 fine. However, there is no inherent difference which many people find it difficult to wrap their head around.

*In the sense of those goods provided by government, not the strict economic sense of a public good.