Take-Back Legislation: Consequences for Remanufacturing and Environment

In the last two decades, many countries have enacted product take-back legislation that holds manufacturers responsible for the collection and environmentally sound treatment of end-of-use products. In an industry regulated by such legislation, we consider a manufacturer that also sells remanufactured products under its brand name. Using a stylized model, we consider three levels of legislation: no take-back legislation, legislation with collection targets, and legislation with collection and reuse targets. We characterize the optimal solution for the manufacturer and analyze how various levels of legislation affect manufacturing, remanufacturing, and collection decisions. First, we explore whether legislation with only collection targets causes an increase in remanufacturing levels, which is argued to be an environmentally friendlier option for end-of-use treatment than other options such as recycling. While increased remanufacturing alone is usually perceived as a favorable environmental outcome, if one considers the overall environmental impact of new and remanufactured products, this might not be the case. To study this issue, we model the environmental impact of the product following a life cycle analysis-based approach. We characterize the conditions under which increased remanufacturing due to take-back legislation causes an increase in total environmental impact. Finally, we model the impact of legislation on consumer surplus and manufacturer profits and identify when total welfare goes down because of legislation.