Recyclability level and quantity decisions of electronic manufacturers under four recycling systems of extended producer responsibility

Abstract

Some electronic manufacturers and groups have left or are planning to leave the default recycling system that regulates their responsibilities for end-of-life (EoL) products. A legislative menu in the extended producer responsibility (EPR) framework allows manufacturers to choose the rate or cost model freely. In this paper, we model four potential recycling systems to study how two firms with brand differentiation should choose legislative models. We analyze the effect of take-back rate and brand differentiation on the firms’ equilibrium decisions, identify the condition in which firms leave the default plan, and further compare economic and environmental outcomes among all recycling systems. We find that only the cost system creates free-riding avenues because the current cost allocation mechanism by market shares does not concern the environmental contributions of members. We also find that the hybrid system (which includes rate-cost and cost-rate systems) provides higher design incentives than the basic case (which includes rate and cost systems), contrasting to the conventional wisdom in which the rate system has superior design incentives. Finally, our results demonstrate that the rate-cost system performs better economic and environmental benefits due to the perfect match between differentiated manufacturers and legislative models.