Deposit-Refund Systems: Theory and Applications to Environmental, Conservation, and Consumer Policy

Deposit-Refund Systems: Theory and Applications to Environmental, Conservation, and Consumer Policy

Deposit-Refund Systems: Theory and Applications to Environmental, Conservation, and Consumer Policy

Deposit-Refund Systems: Theory and Applications to Environmental, Conservation, and Consumer Policy

Synopsis

"Professor Bohm has produced a unique volume, which, for the first time, offers comprehensive coverage of the theory of the costs and benefits of placing money deposits on products which can be refunded when the product is returned for recycling or some form of safe disposal. He demonstrates that the deposit-refund systemis likely to operate at lower social cost than regulation or subsidy to achieve the same effect. Various types of system are analyzed--e.g. producer initiated systems designed to improve profitability via price discrimination, accelerated product replacement or plain stimulus to demand, and government initiated systems in contexts where markets are imperfect. He carefully traces out who gains and who loses from such systems. He also formalizes the requirements for setting the 'optimal' refund rate based on externalities avoided. These theoretical considerations are placed in an empirical context by considering some of the actual deposit-refund systems in existence. He concludes, rightly, that all such systems can be improved, and also shows the use of such systems for control of chloro-fluoromethanes and for the more general case of consumer protection. What might appear as a fairly esoteric work, then, can be seen to have wide application to environmental controls in general, and to consumer legislation. Bohm's work deserves a wider audience than it is likely to get and the author is to be congratulated on the production of this volume."-- The Economic Journal

Excerpt

So far we have dealt with producer-initiated deposit-refund systems and their direct effects on producers and consumers. Because such systems may have effects outside the market of the product involved, we need to broaden the analysis to take these effects into account. Market-borne indirect effects are of minor interest here. Thus we do not explicitly deal with the effects of deposit-refund systems on secondhand markets for the refundable product (where we can expect prices to be affected), on markets for scrapped products (where the supply may change), or on markets for inputs to the producer of the refundable product (where demand may be affected). Instead, we focus on the nonmarket effects of deposit- refund systems, such as effects on the dumping of used products and on the waste volume.

The fact that third-party effects and, in particular, third-party external effects are involved may present a case for government intervention both in markets where producer-initiated deposit-refund systems are in operation and in markets where firms have not found it profitable to introduce them. However, the role of government with respect to deposit-refund systems is not limited to the efficiency (and possibly distributional) aspects of these third-party effects. Market prices may deviate from social optimal prices for other reasons as well, and deposit-refund systems may . . .

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