Waste Generation and Recycling There are two serious failures that arise in the management of solid waste. The first relates to the existence of negative externalities in the individual decision making over waste generation and disposal. When individuals decide on how much to consume and what to consume they do not take into account how much waste they produce. Because the external costs of waste generation (such as air and water pollution) are ignored by individuals more waste is produced and disposed of than is socially optimal. The second serious failure relates to the ways in which waste collection services are typically financed. More often than not individuals pay for waste disposal in lump sums through general taxes or flat payments to local governments or private collectors. Hence waste disposal costs are not fully reflected in the prices households face at the margin. Even if these flat charges included both the private and external costs of waste production and disposal individuals would still face zero prices for additional waste produced and would thus tend to produce (and dispose of) more waste than if they were to pay for the additional garbage according to its social marginal cost.