A Comparison of Product Take-Back Compliance Schemes

Product take‐back regulation, under which firms finance the collection and treatment of their end‐of‐life products, is a widely used environmental program. One of the most common compliance schemes is collectively with cost allocation by market share. As an alternative, individual compliance scheme is considered. Assuming that firms can choose their compliance scheme, we compare these two schemes with respect to the costs they impose on firms and environmental benefits. We show that high collection targets and large market shares among firms in a collective compliance scheme make it more cost‐effective. From an environmental benefits perspective, the prevailing intuition is that collection rates will be higher under collective schemes but individual compliance will provide more incentive for higher recyclability levels. Our results challenge both of these premises. We identify conditions under which collection rates are higher when firms comply individually and recyclability levels are higher when firms comply collectively and allocate costs with respect to market shares.