Abstract
This paper investigates the use of taxes on virgin materials, and subsidies on recycling activities as economic instruments to provide firms with incentives to re-use recyclable materials collected by local governments. Using a partial static model, we first derive conditions under which each instrument leads to waste reduction, and show that they depend on the elasticity of demand for recycled goods and on the waste coefficient. Secondly, a examination of the optimal fee structure for accomplishing a given level of waste reduction shows that a combined tax on goods and a re-use subsidy proportional to the waste coefficient is an efficient and feasible method for reducing waste.
