Economic Instruments and Resource Use in a Recyclable Product Market

By constructing a static model of a recyclable product market where the product can be manufactured by using both a recycled material and a harvested natural resource, we examine how different types of economic policy instruments affect resource harvesting activities of individual producers. In particular, we show that an increase in a recycling subsidy for consumers and an increase in a waste disposal fee on consumers can respectively lead to an increase in the resource harvest level. We explore the conditions under which these economic instruments are likely to backfire in terms of natural resource conservation.