An Analysis of Recycled Content Claims under Supply Uncertainty and Demand Benefit

In this paper, we study how voluntary recycled content claims made by a manufacturer are impacted by recyclate supply uncertainty and demand benefit for recycled products from environmentally conscious businesses and governments. We identify two types of recycled content claims product specific claims for which manufacturer makes the recycled content commitment for each product (e.g., paper napkins made from 90% post consumer recycled paper) and company wide claims where the recycled content averaged across products has to meet or exceed the claim (e.g. “[...] incorporate average of 10% recycled PET across all soft drink containers [...]”). We illustrate each type of claim with industry examples and formulate a two stage stochastic model with recourse to understand the dynamics. In the first stage, the manufacturer chooses the fraction of recycled content and type of claim to make and in stage two, it procures recyclate and virgin raw material to meet the claim. We model two sources of recyclate for manufacturer a low cost but variable supply from municipal (local) curbside recycling and an expensive but unlimited supply from other (non local) sources. We characterize the optimal actions for each type of claim and find that a unique recycled content decision exists for general conditions of demand curve irrespective of the supply distribution. Finally, we look at conditions under which the optimal product specific claim and profits are larger than the company wide claim.