On the Economics of Bottle Deposits

17 Pages Posted: 6 Aug 2004  

Wolfgang Eggert

University of Freiburg - Institute of Public Finance; CESifo (Center for Economic Studies and Ifo Institute)

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2004

Abstract

Deposit systems for one-way beverage containers are widely supported by green activists and have been implemented in several countries. This paper analyzes whether such deposit systems can optimally internalize the externalities that result when consumers dump these containers. It is shown that two major problems arise in a competitive market. First, the proceeds from bottle deposits tend to reduce the price of beverages in a competitive environment and therefore lead to a departure from a first-best allocation. Second, the system usually requires producers and vendors to run a system for taking back and recycling used containers, whose cost vendors can only partly shift to consumers who return their bottles. While a deposit system alone is never optimal, the paper proposes tax-deposit systems that can implement a first-best allocation.

JEL Classification: H23, Q20, H21

Suggested Citation

Eggert, Wolfgang and Weichenrieder, Alfons J., On the Economics of Bottle Deposits (July 2004). CESifo Working Paper Series No. 1243. Available at SSRN: https://ssrn.com/abstract=573264

Wolfgang Eggert (Contact Author)

University of Freiburg - Institute of Public Finance ( email )

D-79098 Freiburg
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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