Valuation of externalities

Recycling is widely assumed to be environmentally beneficial (Craighill and Powell 1996). It slows down the exhaustion of scarce resources and limits the use of landfill space. Recycling, however, also generates significant environmental impacts through the collection, sorting and processing of materials into new products. Therefore, it is unclear when recycling is to be preferred to the use of virgin goods. Studies about the desirability of recycling sometimes lead to opposite conclusions. Leach et al. (1998) found that in the United Kingdom incineration of waste paper is environmentally preferred to recycling. Ackerman (1998) discuss an aluminium recovery scheme in Wisconsin in which the environmental damage of the collection exceeds the benefits of recycling.