Product Design, End-of-life Recycling, and Waste Footprints in Circular Business Models

The paper presented in this Decarbonization Seminar/Joint Seminar ZEW and MISES develops an analytical framework to study how a firm’s product design decisions regarding  recyclability and price interact with end-of-life product disposal decisions by consumers. When making their purchase decisions, consumers adopt a life-cycle perspective and account for the expected utility from end-of-life product disposal. The authors characterize the conditions under which a circular business model with end-of-life recycling is viable and creates a win-win outcome for profit and the  planet. If circularity is socially desirable and consumers do not fully account for the waste-reducing effect of recyclability, then a profit-maximizing firm underprovides recyclability from a societal perspective. Yet, the firm may want to invest in improving consumer access to the reverse supply chain or providing monetary incentives for recycling. To assess the robustness of our results, the authors show that competition does not affect a firm's choice of recyclability under circularity but may undermine the viability of circularity itself. Finally, eco-segmentation under product line design can increase the corporate waste footprint.