Do Market Failures Create a 'Durability Gap' in the Circular Economy?

Don Fullerton () and Shan He

No 9171, CESifo Working Paper Series from CESifo

Abstract: Circular Economy literature recommends longer lasting products, in order to reduce pollution from extraction, production, and disposal. Our economic analysis finds conditions where consumers choose lives that are too short – a “durability gap”. Then policies targeting durability raise welfare. While externalities are corrected by Pigovian taxes that ignore durability, raising the output tax nonetheless induces consumers to pay more for goods that last longer. Second, if the tax is suboptimal, a durability mandate raises welfare. Third, internalities have ambiguous effects. Fourth, a social discount rate less than private discount rate is the strongest case for policy to favor durability.

Keywords: Pigovian taxes; first-best policy; externalities; internalities (search for similar items in EconPapers)
JEL-codes: H21 H23 Q58 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-ene, nep-env, nep-pbe, nep-reg and nep-res
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Working Paper: Do Market Failures Create a ‘Durability Gap’ in the Circular Economy? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9171

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