Legal Encoders

[asid61]

AMT 102 and AMT 103 are great. Look on Digikey for them. They come with a full set of collars for shaft sizes up to 8mm, along with a neat box. VEry cheap, around $25 each.
You can use continuous potentiometers as absolute encoders in some cases. They come as cheap as $15 on Digikey. Regular potentiometers can work but have reduced angle range.
We have used Us Digital encoders, which are not terribly expensive but are still far more expensive and fragile IME than the AMTs.
You can also make your own encoders, but it takes some work. I recommend AMS for the chips if you are interested in going that route.