Recycling and natural resource extraction: Insights from monopoly and social planner perspectives

Type of the article: Research ArticleAbstractThe need to understand how recycling can mitigate resource scarcity has been intensified by the accelerating depletion of natural resources, driven by population growth. In this context, the influence of recycling on the dynamics of natural resource extraction is examined. Through a two-period theoretical model, two settings are considered: one in which profit is maximized by a monopolist, and another in which social welfare is maximized by a social planner. In both cases, a perfectly competitive recycling sector is assumed to operate in the second period, and cost interactions between the initial extraction and recycling activities are explicitly incorporated. It is shown that recycling reduces the second period extraction. In the monopoly case, the initial extraction is reduced under incomplete recycling when marginal recycling costs are high, while its effect becomes ambiguous when these costs are low; under complete recycling, the initial extraction is always reduced. In the social planner case, the initial extraction is found to be reduced under incomplete recycling, while under complete recycling, it is observed to follow an inverted U-shaped relationship with the recycling rate. These findings are seen to contribute to the environmental and industrial economics literature by clarifying how recycling efficiency and cost structures shape optimal extraction strategies, offering insights for sustainable resource management and circular economy policies.