Extended Producer Responsibility for Pharmaceuticals

Işıl Alev (), Atalay Atasu (), L. Beril Toktay () and Can Zhang ()
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Işıl Alev: Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467
Atalay Atasu: INSEAD, Boulevard de Constance, 77300 Fontainebleau, France; Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30332
L. Beril Toktay: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30332
Can Zhang: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Manufacturing & Service Operations Management, 2022, vol. 24, issue 1, 524-541

Abstract: Problem definition : We investigate the effectiveness of different extended producer responsibility (EPR) implementation models for pharmaceuticals. In particular, we study two viable and prevalent models: (1) source reduction (SR), where a form of fee on sale is imposed on producers, and (2) end-of-pipe control (EC), where producers are made responsible for the collection of unused pharmaceuticals. Academic/practical relevance : The existing literature on EPR implementation models has focused primarily on nonconsumable products (e.g., electronics), whereas there is limited research on the effectiveness of different EPR implementation models for pharmaceuticals used in practice. We aim to fill this gap in this study. Methodology : We develop a game-theoretic model to characterize the equilibrium strategies of different stakeholders under both the SR and EC models and compare the resulting producer profit, environmental/social impact, and total welfare. Results : In contrast to the nonconsumable contexts where the SR model is shown to maximize total welfare, the EC model leads to a higher total welfare for certain categories of pharmaceuticals because of its effectiveness in eliminating overprescription. Moreover, we characterize conditions under which stakeholder (e.g., producer, environmental/social advocacy groups) preferences toward EPR implementation model choices are (mis-)aligned. We further show that limiting the social planner’s budget surplus under SR can eliminate the preference misalignment but leads to a loss of total welfare. Managerial implications : (1) Policymakers should be cautious about directly applying preferred EPR models from other product categories to the pharmaceutical setting. (2) The EC model maximizes the objectives of all stakeholders for a salient category of pharmaceuticals with high health benefits, high collection costs, and high environmental/social costs. (3) Policymakers should give thought to differentiating EPR implementation models across pharmaceutical categories. (4) It is important to carefully quantify the health impact of the pharmaceuticals and the operational cost parameters to inform policymaking.

Keywords: extended producer responsibility; pharmaceuticals; environmental policy; social welfare (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:24:y:2022:i:1:p:524-541

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