Do Market Failures Create a 'Durability Gap' in the Circular Economy? / Don Fullerton, Shan He.

Format:

Book

Author/Creator:

Fullerton, Don.

Contributor:

National Bureau of Economic Research.

He, Shan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29073.

NBER working paper series no. w29073

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

The interdisciplinary circular economy literature recommends longer lasting products, to reduce pollution from repeated production and disposal. For any type of appliance, we assume consumers choose among variants with different durability. Firms are competitive. Standard Pigovian analysis shows that optimal taxes depend on pollution and not on product life. Here, we find conditions where consumers choose lives that are too short - a "durability gap". First, we show that suboptimal existing output taxes imply suboptimal durability. An increase in uniform tax on all variants encourages purchase of a more durable variant and raises welfare. Second, welfare also is raised by a subsidy for choosing a more durable variant or by a marginally binding durability mandate. Third, we find that a social discount rate less than the private rate is the strongest case for policy to favor durability. Fourth, the consumer misperceptions we study have ambiguous implications for durability policy.

Notes:

Print version record

July 2021.