Implementing a Circular Economy with Producer Responsibility Organizations

Abstract

Recycling, reuse, and preservation of exhaustible resources has become a major goal in developed economies, which entails the active participation of producers. The implementation of Extended Producer Responsibility, whereby firms are financially responsible for their products end-of-life costs, is commonly delegated to a Producer Responsibility Organisation (PRO). PROs collect fees from producers to organize collection, sorting and recycling of waste. These fees hence have a twofold role of financing the PROs operations and inducing better product design and reasoned material use by the producers. We propose a theoretical framework to study the salient features of this dominant industry organization. The crucial PROs pricing decisions are determined in particular by their status (nonprofit or for profit), the degree of ownership by the producers, and the coarseness of material-dependent pricing. We show that the complex interplay of PRO financing and incentive provisions for the producers is key to address policy questions and provide some guidance for the design of EPR programs.