"No return, no refund": an analysis of deposit-refund systems

Firms and governments in developed economies frequently employ deposit-refu nd systems to promote return and reuse of product packages and containers. We analyze a model of monopoly facing heterogeneous consumers in which recy cling (package return by consumers) generates an external benefit. It is sh own that when consumer's preferences over recycling differ, the monopolist can price discriminate between consumers leading to socially suboptimal rec ycling. In the absence of any externalities, the analysis can be viewed as a model of coupons or mail-in rebates which work as price-discrimination de vices. The role of government subsidies and additional deposits to eliminat e suboptimal recycling is also analyzed. Finally, the model is extended to incorporate hustling, i.e., allowing consumers to recycle packages discarde d by other consumers. (C) 2001 Elsevier Science B.V. All rights reserved.