There is some debate over whether recycling is economically efficient. Municipalities often see fiscal benefits from implementing recycling programs, largely due to the reduced landfill costs. A study conducted by the Technical University of Denmark found that in 83% of cases, recycling is the most efficient method to dispose of household waste

Fiscal efficiency is separate from economic efficiency. Economic analysis of recycling includes what economists call externalities, which are un-priced 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. Without mechanisms such as taxes or subsidies to internalize externalities, businesses will ignore them despite the costs imposed on society. In order to make such non-fiscal 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 favour of recycling, saying that recycling efforts reduced the country's carbon emissions by a net 50 + million metric tonnes. 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.

Certain requirements must be met in order for recycling to be economically feasible and environmentally effective. These include an adequate source of recyclates, a system to extract those recyclates from the waste stream, a nearby factory capable of reprocessing the recyclates, and a potential demand for the recycled products. These last two requirements are often overlooked—without both an industrial market for production using the collected materials and a consumer market for the manufactured goods, recycling is incomplete and in fact only "collection".

Many economists favour a moderate level of government intervention to provide recycling services. Economists of this mindset probably view disposal as an externality of production and subsequently argue government is most capable of alleviating such a dilemma. However those the laissez faire approach to municipal recycling see product disposal as a service that customers value. A free market approach is more likely to suit preferences of consumers since profit seeking businesses have greater incentive to produce a quality product or service to that of the governmental based manufacture. {Extract compliments of Wikipedia}