Extended Producer Responsibility and Secondary Markets

32 Pages Posted: 10 Aug 2014 Last revised: 3 Jun 2016

Isil Alev

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE)

Vishal Agrawal

Georgetown University - McDonough School of Business

Atalay Atasu

Georgia Institute of Technology - Sustainability

Date Written: June 1, 2016

Abstract

We analyze the effect of Extended Producer Responsibility (EPR)-based take-back legislation on a durable good producer's secondary market strategy. We show that the effect of EPR and its associated environmental implications depend on product durability. In the absence of EPR, a producer chooses not to interfere with the secondary market for products with high durability. In this case, EPR provides producers with an incentive to interfere with the secondary market by recovering and prematurely recycling used products to meet EPR obligations. For low durability products, a producer readily interferes with the secondary market even in the absence of EPR, and the effect of EPR depends on its implementation parameters. We find that EPR increases the producer's secondary market interference when it imposes a high collection target and a low recycling standard. In contrast, EPR reduces secondary market interference when it imposes a low collection target or a sufficiently stringent recycling standard. These results, in turn, imply that EPR-based take-back legislation may have unintended consequences in a durable goods setting: It may diminish environmental goals such as reducing new production and increasing reuse levels, two key environmental goals with higher priority than increasing recycling. Our results offer insights for how the environmental benefits of EPR for durable products can be improved or the potential adverse effects can be overcome by appropriately choosing the implementation parameters.

Keywords: Durable goods, Sustainable operations, Environmental legislation, WEEE, Export restrictions

Suggested Citation

Alev, Isil and Agrawal, Vishal and Atasu, Atalay, Extended Producer Responsibility and Secondary Markets (June 1, 2016). Georgetown McDonough School of Business Research Paper No. 2477943; Georgia Tech Scheller College of Business Research Paper No. 25. Available at SSRN: https://ssrn.com/abstract=2477943

Isil Alev

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE) ( email )

765 Ferst Drive
Atlanta, GA 30332-0205
United States

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

Atalay Atasu

Georgia Institute of Technology - Sustainability ( email )

755 Ferst Drive
Atlanta, GA 30332-0250
United States

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