Tietenberg distinguishes new scrap and old scrap . New scrap is generated from production, is easily recovered because it never leaves the factory, and tends to be recycled through the production process efficiently. Old scrap is generated from consumption. It is geographically dispersed, may be contaminated with other residues, and is generally more costly to recover. Recycled resources often have a hard time competing for market share with virgin resources.
Residuals cause environmental damage, or take up costly landfill space, or both.
Recycling reduces these costs, but is only viable if there is sufficient market demand for recycled materials. The development of markets for recycled materials in the US has been slow. Review Spofford's analysis of pulp recycling. Social optimum is where marginal costs of virgin pulp including external damages and treatment and disposal costs equals marginal costs of recycled pulp. The socially optimal rate of recycling is higher than the private optimum rate.