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STANFORD GRADUATE SCHOOL OF BUSINESS—Americans buy new cell phones every 18 months, Europeans buy them every 15 months, and the Japanese every 9 months. Global replacement rates for digital cameras range between two and three years. And U.S. businesses replace their PCs every four years. Where do most of these used products go? Directly into the trash. Indeed, in the United States alone, consumers throw away 400 million electronic products each year.
What happens to the discarded electronics, which represent one million tons of electronic waste (e-waste) annually? Many are shipped to developing countries and illegally processed to recover precious metals, using processes that dangerously pollute the air and water with lead, dioxins, and other toxins. Recent work by Erica Plambeck, Professor of Operations, Information, and Technology at the Stanford Graduate School of Business, and Qiong Wang of Alcatel-Lucent Bell Laboratories, points to a solution — one that slows down the rate of new product introductions. This, in turn, reduces the speed with which consumers replace the electronics they’ve purchased, and decreases the mountains of e-waste accumulating around the planet.
Numerous governments already regulate e-waste disposal. California, for example, charges consumers recycling fees when they purchase new electronic products. Certain members of the European Union put responsibility for e-waste squarely in manufacturers' hands by requiring them to collect and dispose of their products at the end of the product life cycle. Plambeck and Wang show that, when properly implemented, such regulations can significantly reduce the amount of e-waste produced each year.
"Certain forms of regulation slow the rate of new product introduction and mitigate the so-called "Osborne effect," said Plambeck. The "Osborne effect" is a phrase coined to describe what happened when Osborne Computer — the maker of the first portable computer — announced that a new, improved version of its Osborne I product was under development. Sales of the best-selling PC immediately plummeted, and the company went bankrupt soon after.
Today's extremely short electronics product life cycles put many manufacturers in the same position Osborne was in nearly two decades ago. Anticipating that a new product with higher performance and lower price will be released in weeks or months, consumers will pay far less for products currently on the shelf.
Fortunately for manufacturers, when consumers are required to pay a disposal/recycling fee for an electronic product at the point of sale, the new product introductions slow down. "When this additional cost to consumers is added at the beginning of the product life cycle, a' new equilibrium' is established," Plambeck said. "Manufacturers are in less of a rush to introduce new products. Consumers anticipate using a product for longer, and so are willing to pay more for it."
This turns out to be a good thing all around. "Because manufacturers have additional development time, they can make larger leaps in both product capabilities and quality, so the new products coming out are substantially better than the previous generation," said Plambeck. In many cases, the regulation also increases manufacturers' profits. Consumers benefit, because they get more durable products. Then there's the fact that there's a significant reduction in the amount of e-waste generated, because consumers dispose of the electronics less frequently.
Sometime jurisdictions — notably the European Union — require manufacturers to collect and dispose of e-waste at the end of the product life cycle. This can take two forms: either manufacturers are required to take individual responsibility, with each company disposing of its own discarded products, or manufacturers are allowed to band together and form "cooperatives" to collectively gather and dispose of e-waste and share the costs of doing so.
Plambeck and Wang were able to draw some interesting conclusions from their research, which was published in Management Science in March 2009 ("Effects of E-Waste Regulation on New Product Introduction"). First, manufacturers benefit by joining together and disposing of e-waste collectively rather than taking individual responsibility. "This eliminates the cost of separating and sorting the waste by manufacturer, and minimizes government involvement, which generally tends to improve efficiency," said Plambeck.
But there is a caveat: This communal scenario works well at reducing e-waste only if costs are allocated to each manufacturer based upon current sales. In other words, the number of, say, new cell phones that a particular manufacturer sells today would determine how much of the e-waste disposal costs it paid for disposing of yesterday's used products. In effect, this becomes a variation of the fee-upon-sale system — and is as successful as California's regulation at slowing down new product introductions.
As industry resistance has been a primary barrier to U.S. federal regulation of e-waste, an important contribution of the research is to demonstrate that certain, effective forms of e-waste regulation provide benefits to manufacturers.
Although the numbers generated aren't exact, "they should be enough to convince people that the effects we're talking about are substantial," said Plambeck.
The next step: more empirical research that takes this model and runs real-world numbers through it. In the meantime, Plambeck's work on the environment continues. Currently, she's investigating how to assign responsibility proportionally for greenhouse gases generated by supply chains. "This will be important for allocating taxes and fees," she said.
Plambeck is also on the executive committee of the Emmett Interdisciplinary Program in Environment and Resources (E-IPER) at the Stanford School of Earth Sciences, which offers joint programs that combine an MS in Environment and Resources with a JD, MBA, or MD degree. She is also a Senior Fellow at the Woods Institute for the Environment. "Stanford has tremendous resources related to both environmental studies and entrepreneurship, and a strong community devoted to addressing climate change and other environmental issues," she said. "I want to do everything I can to support that community."
— Alice LaPlante
"Effects of E-Waste Regulation on New Product Introduction," Management Science, March 2009