A performance-based mechanism as a support for an environmental protection law is proposed to promote product recovery and to subside the pollution caused by producing brand new products (manufacturing caused pollution). We assume that the market consists of consumers with heterogeneous preferences over brand new and remanufactured products. The mechanism is flexible in structure so that it can imitate diverse taxation and reward-based laws in order to evaluate and compare them in a single general framework. We show that the regulations that are required to reduce manufacturing-caused pollution should be different from those designed for promoting product recovery. It is suggested to decrease collection target to promote product recovery, but to increase it to reduce pollution. However, increasing a target level for remanufacturing always departs the social planner from his environmental goals. Finally, it is shown that stipulating the Buy-Back, Carbon Emission Tax and Tax Subsidy regulations could help expanding the remanufacturing market while putting the quantity of brand new products in check.
Published June 2017 , 34 pages