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

Manufacturer's often declare recycled content claims that hold for each batch (batch specific claims) or as recycled content averaged across batches (batch average claims). We study how a manufacturer's recycled content claim decision is impacted by demand for recycled content driven by Environmentally Preferable Purchasing (EPP) under uncertainty in municipal supply. We track the manufacturer profit, usage of recycled input and virgin raw material, and diversion of recycled input from the landfill implied by recycled content claims. Our contributions are: (a) We establish conditions under which the optimal batch specific claim is larger than the batch average claim; (b) We show that the optimum recycled content claim may decrease with increased demand benefit if the manufacturer's self-collection cost is sufficiently high; and (c) We show that lowering variability in the municipal stream may decrease the recycled content claim depending on the self-collection cost. Based on this, we show that win-win conditions can be created for the manufacturer (higher profit) and the environment (lower virgin material consumption and greater diversion of recycled input from the landfill) using appropriate demand side incentives for recycled content combined with supply-side intervention. We calibrate our model to the fiberglass insulation industry and suggest insights