Just Tell me What my Neighbors Do! Public Policies for Households Recycling

An important stand of the economic literature focuses on how to provide the right incentives for households to recycle their waste. This body of work includes a growing number of studies inspired by psychology that seek to explain waste sorting, and pro-environmental behavior more generally, and highlight the importance of social approval and peer effect. The present theoretical work explores this issue. We propose a model that considers heterogeneous households that choose to recycle based on three main household characteristics: environmental preferences, opportunity cost of their tax expenditure, and their self-image. The model is original in depicting the interactions among households which enable them to form beliefs on recycling and allows them to assess their self-image. These interaction are explored through the model simulations. We point to how individual recycling decisions depend on these interactions, and how the effectiveness of public policies related to recycling is affected by a crowding-out effect. We consider three complementary policies in the model simulations: provision of incentives to recycle through taxation, provision of information on the importance of selective sorting, and a 'localized' approach that takes the form of a 'nudge'. We use the results of the simulations to quantify the consequences of the crowding out effect on total residual waste. This paper makes an original contribution by showing that when the individual decision is influenced by an internalized peer attention, beliefs about others' intrinsic and extrinsic values can be more important than others' observed behaviors.