Multidimensional designs for durable goods: partial commitment ability and technological progress

Abstract

The paper considers a good for which conception determines two design dimensions: durability and the environmental quality during production. The theoretical model studies how design dimensions are impacted by the firm's ability to commit to future prices, and by an expected technological progress on the production technology. The cross relationship between the two design dimensions may be positive (competitive) or negative (complementary). An example of a competitive relationship is when improving durability through surface treatments adds production steps and increases emissions during production. In a two-period model, a monopolist produces a durable good and chooses the levels of the two dimensions. The regulator can apply an environmental tax on emissions during production. In this setting, I study the firm's commitment ability to future prices, pointed in the literature as a motor for planned obsolescence. I obtain that under certain conditions, a lower ability for commitment induces planned obsolescence, but improves the overall environmental performance of the good. I also show how a change in ability for commitment may completely reverse the impact of environmental taxes on design choices. In a second scenario, I study the impact of an expected but uncertain technological progress on green design. Under the social planner's problem, I show how greater expected technological progress on the environmental quality can increase the expected environmental damage. Keywords: green design, environmental policy, durability, planned obsolescence, technological progress JEL classification: L10, O13, Q53, Q55, Q58