On inefficiency and instability in decentralized recycling systems

We identify a source of inefficiency in decentralized recycling systems by taking into account the technological characteristics of recycling activity. We show that competitive market promotion cannot obtain Pareto efficient allocations when the recycling agent perceives recyclables of any quality as perfect substitutes while its productivity is dependent on the quality of the recyclables available. We further demonstrate the instability of the system by investigating the economic adjustment process in the presence of such external effects. Our results suggest that policy interventions that oblige the primary producer to recycle would eliminate these obstacles. Copyright Springer Japan 2001