Take-back regulation: Remanufacturing or Eco-design?

Abstract

In this research, we primarily aim at investigating whether take-back regulation encourages remanufacturing (as a preferred product recovery option) or Eco-design. For this purpose, we assume a manufacturer that produces and distributes a single product, which is regulated by a take-back environmental regulation imposed by a regulator seeking social welfare maximization. At time zero, the regulator decides about either imposing or not imposing a take-back regulation; and if take-back regulation is imposed, the level of penalty for not collecting the products. Subsequently, the manufacturer decides about either remanufacturing the product or investing on designing a greener product. The latter is particularly of interest as the amount of hazardous materials in uncollected products directly contributes to environment damage. Upon deciding on how to respond to the regulation, optimal remanufacturing quantity or emission reduction is determined. Based on the obtained sub-game perfect equilibria, a set of guidelines are proposed to regulators and manufacturers. Among the proposed policies, we highlight that if Eco-design can sufficiently reduce production cost, no take-back regulation is necessary for a more polluting product, while one is required for a greener product. For a costly Eco-design, however, a regulated manufacturer practices remanufacturing.