Currently, waste classification management is being carried out in various parts of China. In order to solve the pain points and difficulties of individuals’ “reluctant to sort, lazy to sort”, which is the source of domestic waste management behavior, the thesis is based on the cost-utility theory, using institutional engineering research methods to study the behavioral cost and utility of individuals’ disposal of domestic waste. Studies show that after the implementation of waste classification management, the increase in the cost and the decline in utility of the individuals’ behaviors in handling domestic waste is the root cause of the failure of waste classification management in China. At present, the implementation of Shanghai’s domestic waste management regulations has problems such as mismatch of penalties, poorly targeted penalties, excessive supervision costs, too few convenient facilities, and individuals’ resistance. The paper puts forward a “double-track” differentiated garbage classification management method, in which market mechanism is introduced to collect garbage classification service fee from individuals with time cost and reward individuals without time cost, while existing measures such as strengthening supervision and increasing convenient garbage classification facilities are taken. On the premise of ensuring the implementation of waste classification management objectives, the utility of individuals’ waste classification behavior can be improved, the government supervision cost can be reduced, and the Pareto improvement can be achieved.