Waste and Recycling by Shinkuma Takayoshi;Managi Shunsuke;

Author:Shinkuma, Takayoshi;Managi, Shunsuke;
Language: eng
Format: epub
Publisher: Taylor & Francis Group
Published: 2011-09-15T00:00:00+00:00

Proof. See Appendix 6.

6.5 Summary of this chapter

In recent years a DF policy has been replaced by an ADF policy for recycling and waste disposal of end-of-life durable goods. We show that the theoretical result of the coincidence between a DF policy and an ADF policy obtained in the existing literature is only applicable to nondurable goods. Our results shed light on the importance of differentiating durable and nondurable goods when it comes to a recycling and waste disposal policy. It is shown that the competitive market with an ADF policy is inefficient and a DF policy is the optimal policy. The reason for this result is that an ADF policy fails to give owners of used goods sufficient incentive to repair defective used goods.

If an ADF policy is adopted, the result is greater consumption and disposal than is consistent with the social optimum. In addition, under an ADF policy the lifetime of a durable good is shorter than what is consistent with the social optimum. The optimal outcome can also be attained by revising an ADF policy. A revised ADF policy subsidizes the repair of defective used goods.

When we take transaction costs into consideration, however, the social optimum becomes unattainable. In this case, an ADF policy may have some transaction cost advantages over other policies, even though this policy cannot attain the social optimum. We show that an ADF policy can be second-best either if the net disposal cost is relatively low or if the repair cost is relatively high.

Note

The solid curve represents the estimated line and the broken-line curves correspond to upper and lower 95 percent confidence intervals.

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