Determining advanced recycling fees and subsidies in “E-scrap” reverse supply chains

Abstract

Primarily due to environmental concerns and legislative mandates, the disposition of end-of-life (EOL) electronics products has attracted much attention. Advanced recycling fees (ARFs) and government subsidies may play important roles in encouraging or curtailing the flows of recycled items. We present a Stackelberg-type model to determine ARFs and socially optimal subsidy fees in decentralized reverse supply chains where each entity independently acts according to its own interests. The model consists of one leader (the government) and two followers (a group of manufacturers, importers, and sellers (MISs) and a group of recyclers). To maximize social welfare, the government determines the ARFs paid by MIS and the subsidy fees for recyclers when MIS sells new products and recyclers process EOL products. We find that MIS and recyclers behave at the equilibrium status by choosing optimal selling quantity in the market and optimal reward money for customers bringing EOL products to recyclers. Under this approach the two fees achieve the maximum of social welfare at the equilibrium status, while both MIS and recyclers gain the maximum of profits. For comparative purposes, we also develop a conceptual model describing the current practice by which ARFs and the subsidy fees are determined on the basis of fund balance between revenues and costs along with recycling operations. We conclude that our results outperform current practice.