Green Recycling Networks
65 Pages Posted: 9 Aug 2013
Date Written: April 22, 2013
In this paper, we study how two important determinants of recycling costs, economies of scale and material-stream homogeneity, influence endogenous recycling coalition formation. On one hand, strong economies of scale make the coalitions typically larger, due to fixed-cost savings. On the other hand, large coalitions generate typically more heterogeneous material streams, which increases the variable recycling costs due to additional separation efforts. By enacting recent concepts such as Extended Producer Responsibility, which shifts the burden of proper disposal of used goods from the (local) governments to the producers that bring the goods to the market, legislators in many countries and states have fostered such coalition building. We study the efficiency of this strategy by analyzing a game-theoretical model in which producers compete in a horizontally differentiated primary market, but they may collaborate at the same time to organize proper disposal of the goods they bring to the market. We find structural differences in the coalitions that emerge endogenously, compared with both the coalitions that a government would select to maximize social welfare and coalitions that a (local) government would set up to minimize recycling costs of the equilibrium industry output in a setting in which producers ignore recycling costs. We conclude by discussing implications for social welfare of implementing taxes or subsidies.
Keywords: government regulations, extended producer responsibility, recycling, coalition stability, group
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