Estimating the effect of unit-based pricing in the presence of sample selection bias under Japanese Recycling Law

In Japan the Containers and Packaging Recycling Law requires the collection of recyclable packaging and containers. In particular, municipalities are required to collect and store the containers and packaging that households have separated from solid waste. However, the law has non-binding standards, and some municipalities do not provide collection services for these recyclables. When estimating the substitution effect of unit-based pricing, i.e. the substitution of recyclables for solid waste, missing data for those municipalities that do not provide a collection service will lead to a truncated sample and, therefore, a sample selection bias in the estimators. We use a Type 2 Tobit model to correct a bias which arises because of missing data. This model provides a consistent estimator, and shows that a higher price for bags and tags increases recycling by households under the unit-based pricing systems introduced by municipalities. (C) 2007 Elsevier B.V. All rights reserved.