The Recycled Content Standard with Differentiated Products

Many countries recommend the use of a recycled content standard, however there are few studies investigating its design. In this paper, we analyze a recycled content standard for differentiated products and derive the optimal recycled content rate. In particular, we focus on two factors that affect a firm’ s production activity. The first is the quality of a product, which is affected by the rate of recycled content. The second is the consumer’ s brand preference, which affects the firm’ s market power. We find that de pending on the marginal cost of recycling, the regulator sets a high recycled content rate when the degree of horizontal product differentiation (HPD) is small. Moreover, in such a case, the amount of waste is less than when the degree of HPD is large.