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Friday, January 26, 2007

Market Failure in Everything: The Recycling Edition

A former student suggests this article from Salon on the economics of recycling:

The final word on recycling , by Andrew Leonard, Salon: ...From time to time, a reader will ask me: so, recycling, good or bad? I have to hem and haw, and go, well, that's a complicated question. That being the case, economist Tyler Cowen's pointer to a roundup of economist views on recycling in Econ Journal Watch was sure to be followed here.

Though not without some trepidation. Tyler Cowen makes no secret of his libertarian sympathies. He is an economics professor at George Mason university, which is something of a libertarian bastion. The editor of Econ Journal Watch is also a George Mason economics professor and the author of the roundup on recycling recently received a Master's degree from GMU. Econ Journal Watch also bills itself as the "sole project" of something that is called "The Institute of Spontaneous Order Economics"... "Spontaneous order" is the kind of phrase libertarian hero Friedrich Hayek was fond of flinging about. It expresses a deep antipathy to anything governmentally planned or induced. Like municipal recycling programs.

But even though author Matthew Gunter's own take on recycling is that the free market is best, the roundup is still useful and interesting... There is no consensus. And yet, Gunter observes, "a majority of economists favor a guided-market approach to recycling policy using the appropriate tax or subsidy to correct for market imperfections."

Which seems sensible enough. Poor libertarians, always doomed to be in the minority. That must be what gives them so much spunk!

Gunter divides economists into four groups. The first is the command-and-control contingent, some of whom can be described as believing that, goshdarnit, recycling is good for your soul and the planet, and we're going to make you do it ... no matter what the spreadsheet analysis says. Then there is the category of the majority, who go to great lengths to differentiate between the cost-effectiveness of various pro-recycling subsidies, incentives, taxes and other schemes, and generally conclude that, although there is no one-size-fits-all solution..., markets do not work perfectly when it comes to waste disposal and thus need some help from government to achieve socially-desirable goals.

Then there's a section for those who don't fit clearly into any category. And finally, bringing up the caboose, are the free marketers, thundering like God to Moses that "Thou shalt worship no other diety than the free market." Only the free market, left to its own devices, will find the most efficient and wealth-generating means of dealing with waste.

If there was such a thing as the free market, one might be inclined to pay these mighty orators ... some heed.

But there isn't, so we don't have to. Instead we have a very complex situation where in many cases the so-called "externalities" -- such as, say, the health hazards of mercury or lead that might be contained in a consumer electronic product -- are not assumed by the manufacturer of that product. ... We have, perhaps most importantly, a wide variety of potentially recyclable products, some of which make economic sense to recycle without much help from government, and some of which may need a little bit of goosing. For my part, I'm much more inclined to trust an economist who makes judgments based on the particulars of a specific case than one who declaims from on high that in every situation, there can be only one answer.

Which is why it is encouraging to see that the majority of economists favor some form of guided-market approach. ... We live in a country where the majority rules, and increasingly, the majority of citizens in the U.S. support recycling.

For economists like Gunter, who notes at the outset that "When it comes to a specific public policy, expert economists and the public often arrive at different conclusions," this democratic belief in recycling must be frustrating. ...

And let's not deny it -- there is a spiritual aspect to recycling that goes part of the way towards trumping any cost-benefit analyses... Whether you're a thrifty Benjamin Franklin "waste not -- want not" type, or a Gaia-worshiping, make-your-tents-out-of-buffalo-hide-and-your-forks-from-buffalo-horn, leave-the-earth-(or campground)-as-you-found-it type, there is a satisfaction that comes from engaging in reuse and recycling. The sight of a great big stinking landfill just doesn't pump you up the same way.

I have little doubt that there is a market failure here - the social benefits of recycling exceed the private benefits - so the question for me is how best to structure incentives so as to induce people to recycle at level that fully reflects the societal benefits from doing so.

    Posted by on Friday, January 26, 2007 at 12:12 PM in Economics, Environment, Market Failure | Permalink  TrackBack (0)  Comments (23)


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