Extended Producer Responsibility for Pharmaceuticals

Forthcoming in Manufacturing & Service Operations Management

41 Pages Posted: 21 Nov 2015 Last revised: 18 Jan 2021

See all articles by Isil Alev

Isil Alev

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

Atalay Atasu

Georgia Institute of Technology - Scheller College of Business

L. Beril Toktay

Georgia Institute of Technology - Sustainability

Can Zhang

Duke University - Fuqua School of Business

Date Written: September 8, 2020

Abstract

Problem definition: We investigate the effectiveness of different Extended Producer Responsibility (EPR) implementation models for pharmaceuticals. In particular, we study two viable and prevalent models: (i) Source Reduction (SR), where a form of fee upon sale is imposed on producers, and (ii) End-of-Pipe Control (EC), where producers are made responsible for the collection of unused pharmaceuticals. Academic/Practical Relevance: The existing literature on EPR implementation models have primarily focused on non-consumable products (e.g., electronics), while there is limited research on the effectiveness of different EPR implementation models for pharmaceuticals used in practice. We aim to fill this gap in this study. Methodology: We develop a game-theoretic model to characterize the equilibrium strategies of different stakeholders under both SR and EC models, and compare the resulting producer profit, environmental/social impact and total welfare. Results: In contrast to the non-consumable contexts where the SR model is shown to maximize total welfare, the EC model leads to a higher total welfare for certain categories of pharmaceuticals because of its effectiveness in eliminating over-prescription. Moreover, we characterize conditions under which stakeholder (e.g., producer, environmental/social advocacy groups) preferences towards EPR implementation model choices are (mis-)aligned. We further show that limiting the social planner's budget surplus under SR can eliminate the preference misalignment but leads to a loss of total welfare. Managerial Implications: 1) Policy makers should be cautious about directly applying preferred EPR models from other product categories to the pharmaceutical setting. 2) The EC model maximizes the objectives of all stakeholders for a salient category of pharmaceuticals with high health benefits, high collection costs and high environmental/social costs. 3) Policy makers should give thought to differentiating EPR implementation models across pharmaceutical categories. 4) It is important to carefully quantify the health impact of the pharmaceuticals and the operational cost parameters to inform policy making.

Keywords: Extended Producer Responsibility, Pharmaceuticals, Environmental Policy, Social Welfare

Suggested Citation

Alev, Isil and Atasu, Atalay and Toktay, L. Beril and Zhang, Can, Extended Producer Responsibility for Pharmaceuticals (September 8, 2020). Forthcoming in Manufacturing & Service Operations Management, Available at SSRN: https://ssrn.com/abstract=2693169 or http://dx.doi.org/10.2139/ssrn.2693169

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

Atalay Atasu

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

L. Beril Toktay (Contact Author)

Georgia Institute of Technology - Sustainability ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Can Zhang

Duke University - Fuqua School of Business ( email )

100 Fuqua Dr
Durham, NC North Carolina 27708
United States

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