Don Fullerton * University of Texas at Austin
Worldwide quantities of household solid waste have been rising. By the year 2000, the USA processed an estimated 544 million tons of solid waste - about 4.4 pounds (2 kilograms) per person per day. Of this total, approximately 370 million tons were put into landfills. 1 Federal legislation has made the siting of new landfills increasingly difficult and costly, while state and local governments continue to pay for landfill costs.
Moreover, most households think garbage collection is free! Traditionally, residents pay for garbage collection services through property taxes or a monthly fee that does not depend on the number of bags or bins placed out at the kerb for collection by the city. This pricing practice provides no incentives for households to reduce quantities of waste generated.
In just the past few years, several cities that face severe waste management problems and revenue problems have begun to adopt some version of a programme that requires households to pay by the bag. 2 Each household must buy special bags at the grocery store, or tags that can be attached to any bag of garbage at the kerb. The city collects only those bags that have paid stickers attached (and provides a small commission to the stores for selling those stickers). While this system can address many cities' waste reduction and revenue needs, the price is not an 'optimal' policy unless it reflects the full social marginal cost at the optimum. 3 That is, the cost per bag of garbage would need to reflect marginal environmental damage (MED) along with the internal or direct costs of collection and disposal. 4
This chapter sets out to address several related issues. After providing some basic information about household garbage and recycling in the USA, it introduces a simple theory for optimal environmental taxes on disposal options, reviews estimates of demand for garbage collection, and discusses possible effects of these taxes on welfare, illegal dumping, and administrative cost. It