There are three things you can do with your container after you consume the contents — put it into the garbage can for an eventual trip to the landfill, recycle, or dispose of it illegally. As a point of departure, suppose that anti-litter laws are perfectly enforced such that the third possibility is not a viable option. The government is left with two policy instruments to incentivize your remaining choice — the price of garbage disposal and a tax/subsidy scheme to encourage recycling.

Under our assumption of perfect enforcement, efficiency demands charging households and businesses for garbage disposal according to the costs thereof, including the social costs of using scarce landfill space and abiding by appropriate environmental controls. Under these assumptions, individuals and private recycling firms will have exactly the right incentives. Recycling will be carried out to the extent that it is socially desirable