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DOES RECYCLING WASTE RESOURCES? W. Robert Reed Department of Economics University of Oklahoma.

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Presentation on theme: "DOES RECYCLING WASTE RESOURCES? W. Robert Reed Department of Economics University of Oklahoma."— Presentation transcript:

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2 DOES RECYCLING WASTE RESOURCES? W. Robert Reed Department of Economics University of Oklahoma

3 My Main Point When recycling loses money it wastes resources and makes society worse off.

4 Therefore +Government should not subsidize recycling efforts. +Public interest advertising that encourages unprofitable recycling lowers society’s welfare.

5 A Little Background Professor Reed wrote a column on recycling entitled “Recycling Does More Harm Than Good” that appeared in the Oklahoma Daily, March 26, 1999.

6 Responses to Prof. Reed’s Column “Robert Reed has over-simplified the issue of recycling to an economic issue. This conservative writer is very naïve and only seems to care about production and profits.” “[Dr. Reed’s] point that recycling wastes resources or denies more good for society is absurd.” “W. Robert Reed’s column on the ‘evils’ of recycling troubled me. His idea that recycling is harmful because it costs more money grossly misses the point.” Professor Anex wrote a response entitled “Recycling Equals Smart Economics” that was published in the Oklahoma Daily, April 9, 1999

7 Prof. Anex’s “Counter” Argument “…it is much less expensive to use recycled aluminum and cardboard than to tear the tops off of mountains in Jamaica for Bauxite or grow trees for wood pulp.” “Recycled materials are so valuable that they are traded on the Chicago Board of Trade.” “Manufacturing firms such as Lucent Technologies have implemented extensive internal recycling programs because they reduce costs.”

8 The Main Point Restated When recycling loses money it wastes resources and makes society worse off.

9 Definition of a “Resource” A resource is anything that has the potential to contribute to society’s well-being.

10 A “Happiness” Test Question: How could we tell what would make you happier? Having a new pair of Nike athletic shoes? Or having a new pair of Old Navy jeans? Answer: By observing how much money you are willing to pay for these items.

11 Another “Happiness” Test Question: How could we tell what would make SOCIETY happier? Having one more pair of Nike athletic shoes? Or having one more pair of Old Navy jeans? Answer: By observing how much money SOCIETY is willing to pay for these items.

12 Prices and Information The price of a good tells us how much society is willing to pay for it. Given certain assumptions*, the price of a good measures the approximate contribution of that good to society’s “happiness.” *We will discuss these assumptions later. Thus, the fact that P T-BONE STEAK > P McDONALD’S HAMBURGER tells us… The fact that P BMW 528 > P FORD ESCORT tells us… The fact that P HOME CLOSE TO CAMPUS > P HOME AWAY FROM CAMPUS tells us…

13 The Application to Recycling Professor Anex: “It takes resources to recycle resources…” Question: Are the resources used up in recycling more or less valuable than the resources that recycling saves? Answer: That’s exactly what prices tell us!

14 The Profit Table Revenues = Price of Outputs x Quantity of Outputs Costs = Price of Inputs x Quantity of Inputs Profits =Revenues - Costs

15 The Profit Table Applied to Recycling: Recycling Paper at UCLA Revenues =$7,217 Costs => $100,000 Profits =  - $100,000

16 Interpretation Recycling paper at UCLA lowered society’s welfare. That is, the resources “destroyed” in recycling paper (labor, energy, machines) were more valuable to society than the resources saved. In other words, UCLA’s recycling program “wasted” society’s resources.

17 Using the Profit Table to Evaluate Recycling Arguments: I “The revenue from recycling doesn’t offset any of the costs of recycling, because right now the market price for materials is at an all-time low. We are in an over-supply situation. The market is saturated, and prices are sinking.”-Carl Hultberg, NYU recycling coordinator.

18 Case Study I: The Price of Recycled Paper is Low Revenues =$7,217 Costs => $100,000 Profits =  - $100,000

19 Using the Profit Table to Evaluate Recycling Arguments: II “Our goal is not to make money. We are trying to reduce the amount of trash that is taken to landfills, regardless of the cost.”- E.J. Kirby, Recycling Director, UCLA

20 Case Study II: Recycling to Save Scarce Landfill Space Revenues = Revenues from Recycled Products + Cost Savings from Less Dumping Costs = Costs of Resources Used to Recycle Profits =Positive/Negative?

21 Using the Profit Table to Evaluate Recycling Arguments: III “We need to recycle paper in order to save America’s valuable timber resources.”

22 Case Study III: Recycling to Save Scarce Trees Revenues = Revenues from Recycled Paper + … Costs = Costs of Resources Used to Recycle Profits =Positive/Negative?

23 Sufficient but Not Necessary Assumptions Social Welfare Function = Utilitarianism* with Constant Marginal Utility of Income Across Individuals. * Louis Kaplow, “A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism,” National Tax Journal Vol. 48, No. 4 (December 1995): 497-514. Prices are “market”-generated prices. Relevant markets are not characterized by market “failures” such as externalities, public goods, or monopoly/monopsony.

24 Failure of These Assumptions to Hold is a Necessary But Not Sufficient Condition to Invalidate the Argument That is, if one or more of these assumptions do not hold, they could make the argument against subsidized recycling stronger, not weaker!

25 Conclusion When recycling is good for society, it will not lose money. When it does lose money, it is not good for society.


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