Product Durability, Solid Waste Management, and Market Structure

For a durable consumption good which turns into waste after consumption, the socially optimal durability increases with an increase in the marginal environmental damage. In a laissez-faire equilibrium under perfect competition, producers fail to provide an efficient product design, i.e. durability is inefficiently small, whereas the amount of solid waste is inefficiently large. The market failure is corrected simply by Pigouvian taxation which also can be interpreted as an extension of the producer responsibility. In the case of imperfect competition (oligopoly or monopoly) Pigouvian taxation indeed ensures an efficient durability but generally not an efficient amount of solid waste. JEL classification: D40, D62, H23, L68, Q23 key words: product durability, environmental externality, Pigouvian taxation, producer responsibility, market structure ∗) I would like to thank Prof. Rüdiger Pethig and Thomas Eichner for very helpful comments. All remaining errors are my own responsibility. Support from the German Research Foundation (DFG) is gratefully acknowledged.