Does Extended Producer Responsibility Improve Eco-Innovation: An Empirical Study of Product Take-Back Programs

Abstract

Problem Definition: Extended producer responsibility (EPR) is an important policy instrument to address environmental risks in solid waste disposal. Whether EPR incentivizes a producer's eco-innovation is an ongoing debate among operations researchers and policymakers. Our research builds on a quasi-experiment design and explores the causal relationship between EPR and eco-innovation. Relevance: Most of the prior EPR studies are built on analytical models. Our research adds to this field by providing a first empirical evidence to show EPR effectiveness in promoting innovation. Methodology: Using firm-level take-back program as an important initiative of EPR and eco-patent as a proxy of eco-innovation, we leverage a difference-in-differences approach with propensity score matching and staggered treatment adjustment to identify the causal relationship between EPR and eco-innovation. Results: We find that adopting take-back programs significantly motivates producers to develop eco-innovation. We also find that producers' program scales and industries play significant roles in the take-back effect. Managerial Implications: Our research provides implications for both producers and policymakers. A growing number of states in the United States have set a goal to eliminate landfill/incineration for product end-of-life treatment, and eco-innovation is essential to achieve this goal. Our findings suggest that policymakers may promote individual take-back programs to incentivize eco-innovation. While taking on a new role in a take-back initiative is challenging, producers that eco-innovate may enhance their competitive advantage in the long run by reducing environmental risks, optimizing production and recycling processes, and satisfying the increasing customer demand in green products and services.