Tradable landfill permits are highly similar to tradable pollution permits.  In this case, the government decides how much garbage will be allowed, then distributes permits to throw out that much garbage.

Once a person holds a permit to dispose of waste, they can sell it to another person.  They can also buy permits from other people.  As a result, tradable permits are thought of as the free-market solution to the problem created by negative externalities.

The permits would actually probably be distributed to local disposal authorities.  These people would trade permits among themselves.  It would be in the economic interests of the disposal authorities to recycle as much as possible.

An added benefit of this system is that in order to recycle more for the economic benefits, disposal authorities might sort recyclable goods.  They would now have both the funds and the incentive to hire people to sort out goods so that more recycling would be possible.

To further their own efforts, the disposal authorities might try to use the same system being used on them on the local people.  For example, they might charge for picking up trash.

Using tradable landfill permits, increased economic efficiency would be achieved.  The problem of externalities would be solved.  Also, companies that incurred great expense in limiting waste would be able to buy permits from those that could stop creating waste easily, meaning less would have to be spent to achieve the same level of waste reduction.