Socially Optimal

Ever since the green revolution there's been a great deal of talk about the need for firms to be "socially responsible." I'm honestly not sure what that means and I'd venture most people don't, either. Perhaps it means that companies should not pursue only profits but also, say, protect the environment even if it's very costly. That might make conventional environmentalists feel good inside but not the rest of society, who has to shoulder those costs. What people often don't recognize is that pursuing profits can protect the environment; one just needs to adjust the incentives.

The Star Online, for example, applauds the growing trend that electronic companies are adding recycling programs to reduce waste. But what is strangely missing from the article is the fact that firms have reasons to recycle beyond making their customers feel good or in the pursuit of some good feelings/PR. The real issue is that often people (and this usually extends to firms, at least in my experience) are charged a flat rate (or no rate) every month or year to throw all their garbage away. Sending three tons a month to the dumpster costs exactly the same as sending one ton (my students would recognize this as a fixed cost). It costs essentially nothing for a firm to send those two tons to the landfill. But recycling those two tons is expensive--sorting, cleaning, and special trips is costly. Is it any wonder that widespread corporate recycling is newsworthy?

Instead of municipal dumps charging a flat rate for throwing things away, why not charge per ton? This landfill in Salinas Valley does (though it notably charges nothing for electronics, what the article in the Star focuses on). That way when a landfill becomes crowded, the price will go up and people will recycle more. But when a landfill is mostly empty, the price will be low and we can avoid those costly activities recycling demands (such as the second or third truck that has to drive around the city). But no matter what, we can depend on firms being socially responsible.