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Fiscal efficiency is separate from economic efficiency. Economic analysis of recycling includes what economists call externalities, which are unpriced costs and benefits that accrue to individuals outside of private transactions. Examples include: decreased air pollution and greenhouse gases from incineration, reduced hazardous waste leaching from landfills, reduced energy consumption, and reduced waste and resource consumption, which leads to a reduction in environmentally damaging mining and timber activity. About 4,000 minerals are known, of these only a few hundred minerals in the world are relatively common. At current rates, current known reserves of phosphorus will be depleted in the next 50 to 100 years. Without mechanisms such as taxes or subsidies to internalize externalities, businesses will ignore them despite the costs imposed on society. To make such nonfiscal benefits economically relevant, advocates have pushed for legislative action to increase the demand for recycled materials. The United States Environmental Protection Agency (EPA) has concluded in favor of recycling, saying that recycling efforts reduced the country's carbon emissions by a net 49 million metric tonnes in 2005. In the United Kingdom, the Waste and Resources Action Programme stated that Great Britain's recycling efforts reduce CO2 emissions by 10–15 million tonnes a year. Recycling is more efficient in densely populated areas, as there are economies of scale involved.

In a 2007 article, Michael Munger, chairman of political science at Duke University, wrote that "if recycling is more expensive than using new materials, it can't possibly be efficient.... There is a simple test for determining whether something is a resource... or just garbage... If someone will pay you for the item, it's a resource.... But if you have to pay someone to take the item away,... then the item is garbage."

Tierney also points out that "the prices paid for scrap materials are a measure of their environmental value as recyclables. Scrap aluminum fetches a high price because recycling it consumes so much less energy than manufacturing new aluminum."

In some U.S. states, a program called RecycleBank pays people to recycle, receiving money from local municipalities for the reduction in landfill space which must be purchased. It uses a single stream process in which all material is automatically sorted.

 

Legislation has also been used to increase and maintain a demand for recycled materials. Four methods of such legislation exist: minimum recycled content mandates, utilization rates, procurement policies, recycled product labeling.

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