Rate, tax, or hybrid: A comparison of recycling systems in the electronic industry

Abstract

In order to motivate electronic manufacturers to handle e-waste in an environmentally friendly manner and to provide them with product design incentives, many countries and states have implemented or are planning to enact the take-back legislation. As two prevailing implementation forms of the take-back legislation: (i) the rate system, where manufacturers recycle independently and meet take-back rate set by states; (ii) the tax system, where states collect the take-back tax from manufacturers and do all e-waste take-back. Recently, China enacts new policies and provides a legislative menu (includes rate and tax models) which allows electronic producers to choose the two legislative models freely. However, previous industry practice fails to show the impact of free choice on the e-waste take-back implementation. Motivated by this, we construct four game-theoretic models to study the free choices of rate and tax models by two heterogeneous manufacturers. We investigate how key parameters (e.g., product differentiation, mandatory take-back targets, and cost-sharing factor) affect manufacturers' optimal decisions, study and compare the economic and environmental performance of four recycling systems. Our results show that hybrid systems (which include rate-tax and tax-rate systems) can bring higher product design incentives and economic outcomes, and moderate competition and stringent regulation may help hybrid systems meet better economic and environmental performance. Finally, we find that the hybrid rate-tax system and basic tax system is suitable for the eco-friendly government, meanwhile, stringent targets should be set.