Leveraging consumers' recycling incentives in a Circular Economy

We study firms' incentives for supporting the transition to a Circular Economy via the choice of their business model, accounting for consumers' recycling preferences and policy makers' Extended Producer Responsibility (EPR) initiatives. Our analysis focuses on take-back programs (TBPs) that reward consumers for dropping off previous purchases at collection points. Results suggest that the uptake of TBPs is primarily driven by the revenue opportunities of firms' collecting and recycling activities and the EPR policy design. Recycling subsidies provide rms with greater incentives than disposal fees or take-back requirements; stricter policies may increase firms' incentives only under take-back requirements or recycling subsidies. From an environmental and consumer welfare perspective, the introduction of TBPs should be encouraged in most cases; regarding producer welfare and the costs of policy makers' initiatives, the result varies with the EPR policy design. In this context, we also identify the trade-offs policy makers face when designing their initiatives.