An Analysis of Recycled Content Claims Under Demand Benefit and Supply Uncertainty

We study how a manufacturer’s recycled content claim decision is impacted by demand for recycled content through environmentally preferable purchasing (EPP) programs and supply uncertainty. We model a manufacturer making a recycled content commitment that can commit to a minimum recycled content that holds for every period (product specific claim), or an average recycled content across periods (time aggregated claim). Our main contributions are as follows: (a) We establish conditions under which the optimal product specific claim is larger than the time aggregated claim; (b) we find that simultaneously easing supply constraints and creating demand side incentives for recycled content can create win-win conditions; (c) we find that lowering variability in the municipal stream decreases the recycled content claim if the manufacturer’s collection cost is low, and (d) show that EPP decreases the recycled content if the collection cost is sufficiently high. Based on this we suggest that regulators should adopt calibrated strategies to incentivize higher recycled content and greater manufacturer profits.