The Organization of Extended Producer Responsibility in Waste Policy under Imperfect Competition

This paper analyzes the e ¢ ciency of Extended Producer Responsibility for waste man-agement. We consider a vertically di¤erentiated duopoly where (endogenous) market quality a¤ects waste disposal costs. Each producer faces a take-back requirement which mandates to collect and treat waste associated with his products. In line with reality, we assume that the producers can either organize individually or cooperate by setting a Producer Respon-sibility Organization (PRO) in order to exploit economies of scale in waste collection and disposal. We endogenize producersdecisions of cooperation and PRO design choices. We show that producers systematically cooperate in equilibrium. But cooperation can damage welfare because producers can use the PRO scheme to generate additional rents on the prod-uct market. It is especially true when quality is positively related to waste disposal costs (e.g. sophisticated packaging)