DP18486 Resource Dependence, Recycling, and Trade
Recycling waste from used goods can substitute for scarce raw materials and reduce resource dependence. We present a model of waste collection, recycling and final goods production using raw and recycled materials. Avoiding environmental damage from non-recycled waste causes costly landfill and creates externalities. An optimal allocation requires a trash tax on producers to pay for costly waste disposal, and an input subsidy to recycling firms to compensate for disposal cost avoidance. Trade between resource poor and resource rich countries involves non-trivial interactions
between terms of trade effects and distortions in recycling and resource extraction.