New idea: retweeting is unethical, inefficient intellectual pollution, you already decided not to follow them,
Can't say I agree.
1. I agree with @TJ_Lynn saying that retweets give new ideas for followers. For most people, it's hard to know who to follow without some information and retweets are a good way to provide that information.
2. I DON'T follow the prolific Matt Yglesias because of how much he tweets. Instead, I rely on the couple hundred people I am following to RT his best thoughts (and he has plenty that are great!).
3. A RT can serve as a "Like" (Facebook) or "+1" (Google+); Twitter doesn't have any other equivalent. Yes, I can favorite tweets, but that is personal. If I want to publicly affirm my agreement with an idea or interest in a link, the RT is the most efficient way to do it.
4. If you take breaks from Twitter lasting longer than an hour, there are often hundreds of tweets clogging your timeline. A RT can draw your attention to an interesting link that you miss when skimming old tweets - if you skim them at all. It helps links transcend time, which is a non-trivial issue in the Twitterverse.
5. Every RT does impose an externality on all of your followers (which is, I think, the basis of Tyler's complaint). However, the externality is very small (140 characters) and you have a simple exit option: Unfollow! As long as there's an exit option, I can't fret over externalities.
How to determine the optimal amount of retweets?
1. Use the market test. Retweet everything interesting until you lose a follower or a few, then back it down a notch.
2. Set limits on how often you RT the same person. Assume that after 5-10 RTs, your followers get the point and will follow the person if they find the links interesting. Note: This undermines my strategy of not following prolific tweeters and using others as my filter. Furthermore, it assumes that your pool of followers is relatively stable over time, which it probably is not.
3. Only RT with commentary; use the quote tweet feature and RT only if you have something to add.
How do you handle retweets?
EDIT 10:00 AM: My friend Ravi offers the solution to excess retweets: Turn them off for specific users.