Environmental and resource policy for consumer durables. (Q1420345)

This book deals with the economic analysis of the product-related environmental policy. The author introduces product durability as an explicit choice variable of the producers and takes into account that variations in product durability affect emissions from producing and consuming the durable good. To the extent that producers do not take into account the relation between product durability and emissions, they ignore the environmental costs of their durability choice and set product durability inefficiently. The main objective of the present book is to formally identify and characterize such market failure and to determine regulatory policies capable of restoring efficiency. The author extends previous durable models in the following directions: (1) taking into account production emissions of consumers durables; (2) solid consumption waste of consumer durables; (3) taking into account product recyclability. In the Introduction the author gives an overview of the previous economic literature on product durability and show in what directions the previous durable good models will be extended. In Chapter 2 the author presents and discusses definitions, assumptions and mathematical tools which are required for the subsequent study. It is considered the difference between durable and nondurable consumption goods and it is shown how a durable good and different vintages of a durable good may be modelled. Then using these modelling concepts the author introduces a basic oligopoly model without environmental pollution, develops a durable good oligopoly game and derives the market equilibrium. The stationary state of the market equilibrium is considered and comparative static analysis of the long run market equilibrium is carried out. Chapter 3 is devoted to extending the basic model in order to analyze the environmental policy for consumer durables. The author focuses on emissions generated during the process of producing the durable goods. The Goering and Boyce model accounting for such production emissions is presented and then this model is modified in order to avoid the technical problems and to offer a richer and more comprehensive policy analysis. In doing so the author derives the efficient allocation in the modified model, characterizes the market equilibrium and identifies market failure under laissez faire. The regulatory schemes capable of restoring efficiency are derived, second-best emissions and output taxation in the polluting durable good industry are considered. Then the question whether the tax instruments employed in the theoretical models are feasible from a practical point of view is discussed. In Chapter 4 the author develops and investigates models incorporating solid consumption waste at the end of the products' life and the associated disposal costs. Firstly the author retains the assumption of commitment ability and investigates a vintage durable good model with consumption waste and producers who use open-loop strategies. Then it is considered the case without pre-commitment and it is investigated a two-period durable good model. In both models the author characterizes the social welfare optimum, then determines the market equilibrium and the laissez faire allocation in order to make the case for governmental regulation. Comparing the social optimum and the market equilibrium allows specifying regulatory schemes capable of restoring the efficient allocation. For the case that the regulator does not dispose of all required instruments to correct for market failure an analysis of second-best taxation is conducted. The results of the theoretical models is used in order to evaluate a practical waste policy. The impact of extended producers responsibility (EPR) instruments and non-EPR instruments on product durability, waste generation and social welfare is discussed. In Chapter 5 recycling policies for consumer durables are studied. Firstly, it is considered a vintage durable good model where, for simplicity, product durability is supposed to be fixed, but the producers are able to vary product recyclability which influences the productivity of the recycling process. The author proceeds by first characterizing the efficient allocation, then identifies a benchmark market economy in which all markets work frictionless and finally derives regulatory schemes capable of restoring efficiency in case the market for recyclability fails to be active. The functional relationship between durability and recyclability thus making durability an endogeneous variable is introduced. Then the waste-delaying effect is studied. Two alternative types of time preferences in characterizing the efficient allocation are considered: the Utilitarian and the Chichilnisky time preferences. Under the Utilitarian approach, the social planner derives the efficient allocation by maximizing the present value of the consumers' utility. This approach discriminates future generations due to the positive and constant discount rate. The Chichilnisky preference gives more weight to the far distant future. The efficient allocation under different kinds of time preferences is derived, a benchmark market economy, where all markets work frictionless is considered and finally market failure and efficiency restoring policy options in case of absent markets for recyclability and durability are characterized.