Leasing, Modularity, and the Circular Economy

47 Pages Posted: 16 Aug 2018 Last revised: 28 Sep 2019

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

Atalay Atasu

Georgia Institute of Technology - Sustainability

Sezer Ulku

Georgetown University McDonough School of Business; Georgetown University - Robert Emmett McDonough School of Business

Date Written: August 2, 2018

Abstract

We investigate the economic and environmental implications of jointly implementing leasing and modularity, two prominent circular economy strategies, and their interaction. We develop a durable goods model to obtain insights for firms considering the use of these strategies. We first analyze the effect of adopting leasing on a firm's product architecture choice. We find that a modular product architecture is more attractive under leasing only if off-lease products depreciate to a greater extent. We next analyze the effect of adopting a modular product architecture on the firm's business model choice. We find that adopting a modular architecture can cause a leasing firm to switch to selling, but will not lead a selling firm to switch to leasing. Building on these results, we show that leasing a modular product is preferred by the firm only under limited conditions, i.e., when production costs are low, off-lease products are in relatively better condition, and when there is a large difference between depreciation levels of different modules. Finally, we show that jointly implementing leasing and modularity can also lead to higher environmental impact than only adopting leasing or modularity in isolation.

Keywords: sustainable operations, circular economy, durable goods, leasing, business model innovation

Suggested Citation

Agrawal, Vishal and Atasu, Atalay and Ulku, Sezer, Leasing, Modularity, and the Circular Economy (August 2, 2018). Georgia Tech Scheller College of Business Research Paper No. 18-32. Available at SSRN: https://ssrn.com/abstract=3225252 or http://dx.doi.org/10.2139/ssrn.3225252

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 )

800 West Peachtree St.
Atlanta, GA 30308
United States

Sezer Ulku

Georgetown University McDonough School of Business ( email )

Washington, DC 20057
United States

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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