Leasing, Modularity, and the Circular Economy
Atalay Atasu
Scheller College of Business Georgia Institute of Technology Visiting Professor of Technology and Operations Management at INSEAD atalay.atasu@scheller.gatech.edu (atalay.atasu@insead.edu)Via https://zoom.us/j/93925249505?pwd=WkZMUU45NmgrTlZqajA1MHA1TmVYdz09
Abstract
We investigate the economic and environmental implications of jointly implementing leasing and modularity, two prominent circular economy strategies, and their interaction. We develop a durable goods model to obtain insights for firms considering the use of these strategies. We first analyze the effect of adopting leasing on a firm's product architecture choice. We find that a modular product architecture is more attractive under leasing only if off-lease products depreciate to a greater extent. We next analyze the effect of adopting a modular product architecture on the firm's business model choice. We find that adopting a modular architecture can cause a leasing firm to switch to selling, but will not lead a selling firm to switch to leasing. Building on these results, we show that leasing a modular product is preferred by the firm only under limited conditions, i.e., when production costs are low, off-lease products are in relatively better condition, and when there is a large difference between depreciation levels of different modules. Finally, we show that jointly implementing leasing and modularity can also lead to higher environmental impact than only adopting leasing or modularity in isolation.
Biographical Sketch
Bianca and James Pitt Chair in Environmental Sustainability and Technology and Operations Management Professor of Operations Management at INSEAD. Atalay Atasu (PhD INSEAD, 2007) teaches sustainability and fundamentals of operations and supply chain management to a variety of business audiences. His research focus is on sustainable operations management, and his interests include the circular economy, extended producer responsibility and environmental regulation; and his publications appeared in Harvard Business Review, Management Science, Manufacturing and Service Operations Management, Production and Operations Management, Journal of Industrial Ecology, and California Management Review. He is the recipient of a number of research awards, including the Responsible Research Award of the MSOM Society (2019), Wickham Skinner Best Paper Award of the POM Society (winner 2007, runner up 2014), Wickham Skinner Early Career Research Award (2012), and Paul Kleindorfer Award in Sustainability (2013). He serves as a Department editor for POMS, and Associate Editor for the Manufacturing and Service Operations Management Journal. He is currently serving as president of the MSOM society.
Link to paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3225252
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