A deposit-refund system (DRS), or advance deposit fee, is a surcharge on a product when purchased and a rebate when it is returned. A well-known example is when container deposit legislation mandates that a refund is given when reusable packaging is returned. Deposit-refund system are a market-based instrument to address externalities. As with Pigovian taxes a DRS aims to limit pollution of various types by creating an incentive to return a product.
While most commonly used with beverage containers it can be used on other materials including liquid and gaseous wastes. Deposit-refund systems are used on products such as batteries, tyres, automotive oil, consumer electronics and shipping pallets.
There are three potential advantages of a DRS: it reduces illegal dumping by giving a financial incentive, it makes monitoring and enforcement easier, and evading the costs is difficult.
Deposit-refund systems can be both voluntary or mandated by legislation.
- Walls, Margaret (November 2011). "Deposit-Refund Systems in Practice and Theory" (PDF). RFF DP 11-47. Resources for the Future. Retrieved 22 August 2012.
- Fullerton, Don; Wolverton, Anne (January 2000). "Two Generalizations of a Deposit-Refund System". NBER Working Paper No 7505. National Bureau of Economic Research. Retrieved 22 August 2012.