Recovery Targets and Taxation/Subsidy Policies to Promote Product Reuse

34 Pages Posted: 8 Apr 2015

See all articles by Sam Aflaki

Sam Aflaki

HEC Paris - Operations Management and Information Technology

Shumail Mazahir

Desautels Faculty of Management, McGill University

Date Written: April 4, 2015

Abstract

This paper seeks to identify the optimal policies for promoting product recovery and remanufacturing. Using a stylized equilibrium model, we analyze the problem as a Stackelberg game between a regulator and a monopolistic firm. We compare three types of policies that legislated regulation could effect: (i) A recovery target policy that requires firms to recover no less than a specified fraction of their production for proper disposal or possible remanufacturing; (ii) a taxation policy that both taxes manufacturing and subsidizes remanufacturing; and (iii) a newly introduced mixed approach that incorporates a recovery target as well as taxes and subsidies. We study a firm's behavior under the three policy types, including pricing decisions for new and remanufactured products as well as the strategic decision of whether to create a secondary channel for remanufactured products. We find that legislative intervention makes it more likely that firms will maintain a single-market strategy. We further demonstrate the mixed approach's superiority as measured by a comprehensive set of economic and environmental criteria, and show that this finding is robust under two different objective functions for the policy maker, one that does and one that does not entail a budget neutrality constraint.

Keywords: product recovery, remanufacturing, optimal sustainable policies, closed-loop supply chains

Suggested Citation

Aflaki, Sam and Mazahir, Shumail, Recovery Targets and Taxation/Subsidy Policies to Promote Product Reuse (April 4, 2015). HEC Paris Research Paper No. MOSI-2015-1091. Available at SSRN: https://ssrn.com/abstract=2591297 or http://dx.doi.org/10.2139/ssrn.2591297

Sam Aflaki (Contact Author)

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

Shumail Mazahir

Desautels Faculty of Management, McGill University ( email )

1001 rue Sherbrook West
Montreal, QC H3A 1G5
Canada

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