Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245352 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9171
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
Pigovian taxes
first-best policy
externalities
internalities
JEL: 
H21
H23
Q58
Document Type: 
Working Paper
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