Competitive advantage of qualified WEEE recyclers through EPR legislation

Most of waste appliances in China are handled by unqualified recyclers, rather than by qualified ones equipped with advanced but costly technology. To address this problem, China implements a series of take-back legislations in the framework of Extended Producer Responsibility (EPR) with a self-financing subsidy scheme. To analyze the performance of the legislations, we develop a two-period model with a selling period run by a manufacturer and a recycling period conducted by two recyclers. We show that the self-financing condition gives an upper limit for the subsidy. We also show that this limit is not monotone in the recyclers' competitiveness difference, and there may be a gap between the upper limit and the optimal subsidy that maximizes the social welfare, i.e., a larger subsidy does not necessarily render a larger welfare. Further, we numerically show that the legislations improve the environment performance, but decrease the total profits of the manufacturer and recyclers. Interestingly, the legislations may or may not decrease the consumer surplus.