TITLE:  Operational Perspectives on Extended Producer Responsibility for Durable and Consumable Products

ABSTRACT:

Growing post-consumer waste and associated environmental and public health concerns have resulted in more regulated waste management. In this context, Extended Producer Responsibility (EPR) has emerged as an environmental policy concept that focuses on the “polluter pays” principle. This principle shifts the economic burden of waste management on producers by imposing collection and recycling obligations. Over the last two decades, EPR has gained momentum all around the world for several product categories including batteries, carpet, leftover paint, pharmaceuticals, and electronics. This thesis consists of three essays that contribute to the understanding of the economic implications of EPR from an operational perspective by analyzing how EPR affects the markets for certain durable (such as electronics) and consumable (such as pharmaceuticals) products.

In the first essay “Extended Producer Responsibility and Secondary Markets”, we investigate the effect of EPR-based policy on a durable good producer's secondary market strategy. We consider incentives of durable good producers to recover used products from the secondary markets and discard them. We base our analysis on a discrete-time, sequential, producer-consumer game over an infinite time horizon, where the producer offers a buy-back program that pays consumers a fair market value for the return of their used products (e.g. Dell, HP, Fujitsu, Apple).  We completely characterize the secondary market strategy of the producer at Markov-perfect, stationary equilibrium. We find that secondary market interference through buying back may deteriorate environmental outcomes by increasing new production and reducing reuse levels. We provide insights into how to set EPR obligations to avoid these adverse outcomes. Furthermore, we validate our results by calibrating with real-life data and considering a number of extensions that represent different operational environments. Our analysis collectively uncovers possible strategic approach of durable good producers to EPR obligations and suggests that EPR obligations may result in unintended outcomes in a durable setting.

In the second essay “A Market-Based Extended Producer Responsibility Implementation - The Case of Minnesota Electronics Recycling Act”, we investigate the operational implementation details of EPR-based policy on the ground. In the implementation of EPR-based policies, ``market-based" approach has recently become the mostly advocated approach. Its main premises are to promote cost efficiency and to achieve better environmental outcomes by adopting free market principle and setting desirable targets for collection with broad flexibilities. In this essay, we analyze whether these premises hold by focusing on the Minnesota Electronics Recycling Act, a prevailing example of marked-based EPR policy implementation in the US. Based on publicly available reports and our interviews with the stakeholders, we explore its implementation rules, stakeholder perspectives, and resulting outcomes together with underlying dynamics. We find that the Minnesota Act appears to achieve the premises of the market-based approach, but this possibly occurs at the expense of several environmental disadvantages. Our analysis suggests that these disadvantages arise from market dynamics at the implementation stage and associated stakeholder interactions.

In the third essay “Extended Producer Responsibility for Pharmaceuticals”, we focus on EPR-based policies for unused pharmaceuticals, a category of products with a consumable nature. EPR-based policies have recently gained popularity for pharmaceuticals to address their recently recognized environmental and public health externalities (e.g. EU, British Columbia, Alameda and King Counties in the US). However, little is known regarding the effectiveness of these policies for pharmaceuticals and little guidance can be obtained from EPR implementations for durable products, because product characteristics demand structures and market dynamics are very different. Motivated by this, we analyze how the EPR concept can be effectively operationalized for pharmaceuticals by analyzing the interactions in the pharmaceutical chain as they relate to EPR. We build a game-theoretical model that focuses on major stakeholders (pharmaceutical producers, doctors, patients, the environment and public health) and their unique and complex interactions as well as moderating factors for these interactions (pharmaceutical promotions, mediated demand structure due to doctor-patient interaction). With this framework, we investigate the effectiveness of EPR-based policies and demonstrate that the preferred policy from the welfare perspective depends on the healthcare and externality characteristics of the medicine together with collection-related requirements in place. This shows that experiences and well-established premises learned from EPR implementations for durable products do not necessarily hold for consumables such as pharmaceuticals.