Production, Manufacturing and Logistics Recovery decisions of a producer in a legislative disposal fee environment Öznur Özdemir a,⇑ , Meltem Denizel b , V. Daniel R. Guide Jr. c a Erasmus University, Rotterdam School of Management, Department of Decision and Information Sciences, Room T09-44, Burgemeester Oudlaan 50, 3062 PA, Rotterdam, The Netherlands b Ozyegin University, Faculty of Economics and Business Administration, Kusbakisi Cad. No. 2, 34662 Altunizade, Uskudar, Istanbul, Turkey c Pennsylvania State University, Smeal College of Business, Department of Supply Chain and Information Systems, 464 Business Bldg., University Park, PA, USA article info Article history: Received 12 September 2009 Accepted 21 July 2011 Available online 29 July 2011 Keywords: Environment Extended producer responsibility (EPR) principle Environmental legislation Product recovery Redesign abstract The main objectives of the environmental legislation originating from extended producer responsibility (EPR) principle are to lead producers to undertake recovery initiatives for their end-of-use products and to promote environmentally desirable product design. It is still controversial whether current implemen- tations of EPR principle are effective in attaining these objectives. This study seeks to answer the follow- ing questions: (1) What is the impact of EPR legislation on the product recovery decisions of producers? (2) How do the redesign opportunities (i.e., design for disassembly) affect the willingness of producers for product recovery? (3) How do the investment needs to start recovery practices and the reluctance of pro- ducers to allocate sufficient funds for this purpose affect the optimal recovery decisions? We use stylized economic models to represent the implementation in practice and solving our models we obtain closed form and numerical solutions that help us to see the impact of various parameters on the optimal deci- sions of a producer. Our findings indicate that redesign opportunities encourage producers for more recovery, however the reluctance of producers to cover the initial investments may substantially reduce the effectiveness of the legislation and the recovery amounts. Ó 2011 Elsevier B.V. All rights reserved. 1. Motivation and introduction The current interest in sustainable business practices is the re- sult of a greater awareness of the negative impacts of industrial activities on the natural environment. In particular, the increased volumes of waste materials from consumer electronics have at- tracted attention from governments globally. Accordingly, many national governments (e.g., Japan, Canada, and Taiwan), the Euro- pean Union members, and 23 states in the US have adopted ex- tended producer responsibility (EPR) principle based legislation for end-of-use treatment of products. The primary aim was to in- crease the amount and degree of product recovery and minimize the environmental impact of waste materials. For this purpose, EPR policies hold producers financially responsible for the proper treatment of their end-of-use products. A further goal of EPR legis- lation is to promote product recoverability improvements that will ease disassembly and increase the retained value in recovery oper- ations. Articles 12, 14, and 4 of the EU directive on Waste Electron- ics and Electrical Equipment (WEEE) and Articles 13, 22, 4-1 (b), and 9-2 of the EU directive on end-of-life vehicles (ELV) explicitly set the recoverability improvement as an objective for the national regulations of member states. Recoverability improvement goal of EU Directives is apparent from the speech of EU Environment Com- missioner Margot Wallström in the announcement of WEEE: ‘‘...(WEEE) could convince member states to strengthen the individual responsibility of producers for the waste from their products. This will be an important incentive to producers take the environmental conse- quences into account already when they stand around the design ta- ble.’’ (Europa, 2002). However, current EPR regulations have not been very successful in attaining these objectives; especially improvements in product recoverability have been very limited at best (Atasu et al., 2009; Savage, 2006; Walls, 2006; Zuidwijk and Krikke, 2008). To reduce administration costs and ease implementation, in Europe EPR legislation is mostly implemented through collective schemes where some central organizations carry out the collection and recovery operations on behalf of the producers. However, since the producers cannot reap any benefits from the recovery process, these collective schemes do not give any incentives to the produc- ers for product recoverability improvements. In contrast, individ- ual schemes where each producer sets up and manages its own collection and recovery system independently give such an incen- tive and lead to closed-loop supply chains where components/ materials from end-of-use products can be reused in the new pro- duction. In a number of USA states (e.g., Minnesota, Wisconsin, North Carolina, Oklahoma, Hawaii, Michigan, Missouri, and Texas) e-waste laws that regulate the proper collection and treatment of 0377-2217/$ - see front matter Ó 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.ejor.2011.07.035 ⇑ Corresponding author. Tel.: +31 10 408 2277. E-mail addresses: OOzdemir@rsm.nl (Ö. Özdemir), Meltem.Denizel@ozyegin. edu.tr (M. Denizel), drg16@psu.edu (V. Daniel R. Guide). European Journal of Operational Research 216 (2012) 293–300 Contents lists available at SciVerse ScienceDirect European Journal of Operational Research journal homepage: www.elsevier.com/locate/ejor