Extended producer responsibility and comparative advantage

Abstract

Extended producer responsibility is a business strategy whereby a firm assumes responsibility for the environmental impacts of a product throughout its entire lifecycle. By taking such responsibility, a firm realizes an incentive to design environmentally preferable products that are easier to recycle, reuse, or re-manufacture. Many extended producer responsibility strategies involve product take-back, whereby the producer can harvest residual value of the product at the end of its useful lifetime. This strategy is connected to sustainable development in that producers are taking responsibility for the products they are offering. Society is faced with many global environmental problems that threaten ecological stability and social wellbeing. Extended producer responsibility facilitates awareness of these problems and encourages the design of innovative products with minimal environmental impacts. This awareness is an important step toward the possibility of sustainable development. There are three requirements for successful differentiation of a product. First, consumers must be willing to pay for the new product. Second, credible information must be available regarding the product. Third, barriers must be erected to prevent competitors from imitating the product. A producer who attempts to satisfy these requirements is exhibiting rational economic behavior. Hence, this thesis asks whether firms that invest in sustainable product differentiation through extended producer responsibility are exhibiting rational economic behavior. Four products are examined in extensive detail. These include Xerox's Document Center 265, Interface's environmental flooring products including the Evergreen Lease, Kodak's single use camera, and Deep E. Co.' s environmental footwear. Each case study has shown evidence of rational economic behavior. However, Interface and Deep E. Co. have also displayed strong environmental propensities that seem to prohibit successful differentiation. Furthermore, two other requirements are found that are particularly important for extended producer responsibility. First, the producer must invest in an extensive R&D relationship with its suppliers. Second, to harvest residual value of the product, reverse logistics systems must be in place. The thesis concludes that regulation is not necessary for products such as those studied here. However, voluntary programs resembling EPA's Energy Star program may help in communicating the benefits of extended producer responsibility to other businesses.