Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 An evolutionary modelling of recycling and product-life extension EMAEE 2007 Globalisation, Services and Innovation: The Changing Dynamics of the Knowledge Economy 17 – 19 May 2007 Eric Brouillat GREThA UMR CNRS 5113 Montesquieu - Bordeaux IV University, France

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Plan Outline of the context Model description Simulations results Conclusions

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Evolution of waste streams In the OECD countries, domestic waste streams have increased by 40% in volume between 1980 and In France, the emission of domestic waste per person actually doubled between 1960 and Growth rate in French domestic waste emissions has been about 2,5% par year for decades.

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Closing the material loop Short loops = product-life extension by means of re- using products as well as by maintenance, repair, reconditioning and technological upgrading (ex: retreading of tyres, the Xerox life-cycle design programme for photocopiers, the Siemens-Albis AG portable operating system BS2000, etc.) Long loops = post-consumption recycling : collecting waste, sorting it to recover materials which may be recycled, and then transforming these materials (physically and/or chemically) to obtain new raw materials.

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Closing the material loop Short loops are much more complex to implement than long ones. product-life extension => slow down product replacement speed by consumers => lower sales. product life extension => slow down technical progress. Firms are usually reluctant to adopt a product-life extension strategy. The tendency is rather to see a decrease in product-lifetime. Firms tend mainly to concentrate more on recyclability.

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Issues studied Investigate firm's economic incentives to extend product life and market recyclable products. Identify the conditions favouring diffusion of products with a low environmental impact: easily recyclable products with a long lifetime (green products). study the impact of such diffusion on waste management and ecological variables.

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Model structure Model based on the "History-friendly" model by Malerba, Nelson, Orsenigo and Winter (1999). Focus on the environmental dimension of the product => introduction of the post-consumption phase.

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Model structure

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Products characteristics Lifetime (LT). Rmax1 LTmax1 Rmax2 LTmax2 Recyclability (R) Design for recycling Initial design Long lifetime design backed up with services Design for recycling

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Firms R&D investment with 0 μi 1. with 0 δ i 1

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 The innovation process with Rmax = Rmax1 if R i,t-1 Rmax1 and Rmax = Rmax2 if R i,t-1 > Rmax1. with LTmax = LTmax1 if LTi,t-1 LTmax1 and LTmax = LTmax2 if LTi,t-1 > LTmax1. Innovation probabilities

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Supply - demand interactions Products visibility Non-green consumers : β3 β1 + β2 Green consumers : β3 < β1 + β2

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Product manufacturing two categories of perfectly substitutable inputs: recycled inputs and virgin inputs Share of recycled inputs = parameter Recycled inputs provided by the recycler, virgin inputs by suppliers external to the model

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Selling price If LTi,t LTmax1 If LTi,t > LTmax1

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 The recycler The recycler collects the complete range of end of life products which he recycles and sells to the producers as recycled inputs Starting from a unit of product, the recycler recycles, manufactures and sells R units of recycled inputs

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Experimental set-up LSD 5.5 simulation platform 10 firms, 1000 consumers and 1 recycler neither entries nor exits of firms and consumers Monte-Carlo method : simulations. The number of periods is randomly chosen between 1 and 200. The results of the last period of each simulation are studied. Simulations initialized with a randomly drawn vector of values for the main parameters => observations covering quite a diversified subset of the parameter space

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Firm level results Determinants of market shares in terms of users

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Firm level results

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Market level results Determinants of product quantities sold

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Market level results Determinants of recycled waste flows

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Market level results Box plots of virgin inputs flows

Groupe de Recherche en Economie Théorique et appliquée – UMR CNRS 5113 Conclusions Very simple model New model under development with - an explicit technological dimension; - adaptive firms innovation strategies; - new design => adoption costs; - exit of firms; - innovation activities of the downstream actors in the supply chain; - environmental regulations (extended producer responsability).