Implementing Tax on Garbage - Report Example

Economics Garbage Table of Contents Introduction 3 Waste Collection- A Costly but under Priced Affair 3 Should the US Government put a price on garbage in order to encourage more recycling 4 Costs of Recycling and Social Benefits 6 A Suggested Alternative for the Government 7 Conclusion 7 Part B 8 Description of Contributions of Each Member 8 Factors that Impact on the Effectiveness of a Group 8 Factors that Impacted on the Effectiveness of my Group 9 References 9 Bibliography 10 Introduction This project attempts to explain the reason behind the US government’s initiative to implement tax on garbage so as to encourage more recycling. Social costs in the form of environmental pollution have been neglected for a long time by the conventional theories of economics. This should not come as a surprise because the traditional theories were not equipped enough to deal with the intrinsic market phenomena. Such event arises out of the interdependencies between markets and prices which the traditional economic theories do not take into account. This project tries to evaluate the magnitude of economic cost involved in environmental disruption resulting from garbage accumulation. In these processes, externalities come into play which has been described at length. Waste Collection- A Costly but under Priced Affair Marginal costs are involved while collecting and disposing waste products. Figure 1 shows the demand for waste collection, the marginal private cost and the marginal social costs of collection. Every cost is assumed to be constant. Presently the price of collection is zero (P0) and at this price households create a lot of waste. If the price for waste collection is raised to P1, there would be less production of waste, W1. But, the price covering all social costs (Popt) would generate even lower wastages (Wopt). For any amount exceeding this optimum amount of wastage, households are not willing to pay an amount equal to the social cost. Pricing wastage at zero, leads to dead weight loss. Dead weight loss is the summation of the areas depicted by α and β. Thus an optimum of Popt has to be charged on wastage to keep the level of waste at the minimum (Porter, p.41). Figure 1: Deadweight Loss due to under pricing Waste (Source: Porter, p.41) Should the US Government put a price on garbage in order to encourage more recycling Recently, the process of disposing wastes has become extremely expensive because of the rise in land prices, environmental regulations, and also because of host fees charged by the localities. In north eastern US, tipping fees amount to $125 per ton. Many of the towns have to pay a certain amount of fees in the form of general revenues for garbage collection. There is no system of paying a price for a particular number of bags. Thus, most of the residents have a feeling that it is free. Nowadays, most of the towns have been selling stickers and special bags required for collecting the garbage. These charges are meant to defray the cost involved in the collection of bags. They are also meant to discourage wastes. Recent studies have presented two advantages in favour of the charges implemented. One group is of the opinion that the concept of unit pricing would encourage the households to reduce the amount of wastes generated by them. This may be achieved by introducing changes in the purchasing and consumption patterns in households, reusing containers and other products, and also by composting wastes. Other procedures include household burning of papers in fireplaces and carrying wastes to the commercial dumpsters, vacant pots and back woods (Fullerton & Kinnaman, p.1). The question remains if garbage should be taxed because it leads to externalities, or subsidised though it encourages illegal dumping. Another question is whether a similar effect could be produced by implementing tax on virgin materials. In this regard, a general equilibrium model has been developed. It is assumed that a single commodity is produced by using one single factor of recycled inputs, along with virgin material like timber or minerals. This model considers three externalities. Firstly, garbage accumulation and disposal imposes health costs to those living near landfills or incinerators. Secondly, improper burning and dumping of goods can lead to higher costs. Virgin material extraction involves strip mining and clear cutting, which may affect land owners who sell minerals and timber rights. It may also affect those who enjoy wildlife and wilderness. If recycling and garbage are the only two choices of disposal, the World Resources Institute (WRI) suggests that the garbage collection fee would include both the resource cost as well as the external cost. The third option of disposal is illicit dumping. The best option can be achieved when tax is imposed on garbage and illicit dumping. These two taxes reflect their respective externalities. It may happen that it is impossible to impose tax on illicit dumping. This does not mean that the best option cannot be obtained. Under general equilibrium, relative prices matter. “Any tax can be set equal to zero as long as taxes on all other relevant activities are adjusted so as to induce first best relative prices” (Fullerton & Kinnaman, p.2). Costs of Recycling and Social Benefits A cost and benefit analysis of recycling have been done in US to determine the good and bad effects of recycling for the country. This analysis would also include the effects of recycling on the economy of the country. However, it is seen that the effects of recycling varies significantly from region to region. Every cost and benefit approach starts by listing the number of benefits and costs associated, and a process of measuring them in dollars. Recycling is said to have three main benefits. It leads to the recovery and reuse of material. It encourages “the reduced use of a landfill” (Porter, “The Chief Social Benefits and Costs of Recycling”) and reduction in the need for collecting solid wastes. The major cost associated with recycling is collecting material which is recyclable, and processing them for further use in future. Other costs and benefits are also attached to it. The process of recovering and reusing materials discarded has certain major benefits. Problem arises while allocating dollar value to the recycled products which comprises a particular quantity of certain material and a particular quantity of some other material. The most obvious way of assigning value to the recovered recyclables is to measure the revenue earned by selling them. But the drawback in this method is that the materials are values at the price which the users are willing to pay. Also the market prices keep fluctuating frequently. This means that the cost benefit analysis would largely depend on the price level prevailing in that year. This problem can be overcome to some extent by taking the average of the prices prevailing for several years. Another problem is that the decisions to recycle or not, is not taken every year. So the main focus should be to take a measure of the average revenues that can be earned over a long period of time. In this case the problem is that the price prevailing at the present point of time is not a good measure to estimate its future level. Another problem exists while measuring them at the market prices. Market prices estimate only the private benefits that the buyer draws from buying the product. There are other benefits which people would like to include, like energy savings. But there is no way to measure how the conditions prevailing in those markets affect recycling. (Porter, “The Chief Social Benefits and Costs of Recycling”) A Suggested Alternative for the Government Since pollution tax affects households with low incomes, it is suggested that tax rebates be paid to them. They are the ones who spend the maximum income on goods that are pollution intensive. Rising prices and relative wage rate creates the maximum pressure on low income people. It is seen that the effect of prices are so high on the part of both skilled and unskilled workers, that even after returning all the revenues to them, it is not possible to offset the effect of rising prices on them. Conclusion Garbage disposal does result in various adverse consequences, but imposing tax on it does not really solve the problem. Rather it leads to a number of negative externalities. For some people, more particularly for the low income group households, it might even create excess burden. Taxes may also lead to illicit dumping, which consequently results in higher costs. In view of the above mentioned circumstances, an alternative plan has been suggested to protect people who have to handle excess burden because of pollution tax. Part B Description of Contributions of Each Member This project has been the developed by the combined efforts of a group of five members, namely, Fan, David Mao, Poyan, Eric and David. Fan has discussed about the aims of the project and provided a brief on how garbage accumulation leads to the creation of externalities whose costs are to be borne by the society. David Mao has provided facts about waste collection being a costly business, but underpriced in society. Poyan has discussed whether the US government should implement tax on garbage with the intension of encouraging more recycling. Eric has highlighted on the costs of recycling and its benefits towards society. Lastly, David has proposed an alternative method of putting tax on garbage by the government. Factors that Impact on the Effectiveness of a Group Organisational and situational factors may influence group performance. For example, reward system prevailing in the organisation determines the degree of cooperation and coordination between members of the group which consequently determines performance of the team. Nature of the task can also have an impact on the group performance. Research has revealed the task difficulty has led to significant variance in performance of teams. Work structure may affect the performance of a group. There can be a number of ways in which a team may decide to perform a task. Each member of the team may take up a single task or may even exchange their roles as per requirement. Lastly, characteristics of each member, like skills, abilities, competencies and rivalry among members also account for group performance. (Kelley, 1992, p.122) Factors that Impacted on the Effectiveness of my Group Since this was a team work, there were differences in competency levels of members. Each member was allotted tasks according to his skills and abilities. Since there were no interdependence and exchange of responsibilities, this helped in avoiding conflicts. References Fullerton, D. & Kinnaman, T. C. Introduction. February 18, 1994. Garbage, Recycling, and Illicit Burning or Dumping. August 17, 2010. < http://works.bepress.com/cgi/viewcontent.cgi?article=1023&context=don_fullerton> Fullerton, D. & Monti, H. Can Pollution Tax Rebates Protect Low-Income Families? The Effects of Relative Wage Rates. 2010. August 17, 2010. < http://works.bepress.com/don_fullerton/57/> Kelly, K. Issues, theory, and research in industrial/organizational psychology. Elsevier. 1992. August 19, 2010. Porter, R. C. The Chief Social Benefits and Costs of Recycling. 2002. The economics of waste. Resources for the Future. Bibliography Groover, M. P. Fundamentals of Modern Manufacturing: Materials, Processes, and Systems. 2010. John Wiley and Sons. Frankhouse, C. L. Economics of agriculture and natural resources. 2006. Nova Science Publishers. Fishbein, B. K. Germany, Garbage and the Green Dot: 1996. Challenging a Throwaway Society. 1996. DIANE Publishing. OECD. Addressing the economics of waste. 2004. OECD Publishing. Slater, S., Sengupta, S., & Mohr, J. J. Marketing of High-Technology Products and Innovations. 2009. Jakki Mohr. Read More