Recycling Standards, Green Inventions, and Spillover: Evidence from California’s Electronic Waste Recycling Act (EWRA)

Problem definition: The improper disposal of electronic and electrical goods at the end of their useful lives (i.e., e-waste) can have adverse effects on the environment and human health. The increased awareness of the negative consequences of e-waste has prompted many regulators to enact recycling standards that promote the proper disposal and recycling of e-waste. A large body of research has used analytical models to explore how recycling standards affect firms that make electronic and electrical goods. A key insight from this research is that e-waste recycling standards would induce firms to design products that have reduced environmental impact and are easier to recycle. In other words, e-waste recycling standards would enhance inventive activity at firms to better comply with regulatory requirements. But hardly any empirical work has validated the insights developed with analytical models. Methodology/results: We empirically examine whether California’s Electronic Waste Recycling Act (EWRA) affects the inventive output (i.e., measured as patents) of firms that manufacture electronic and electrical goods. We leverage a quasi-experimental setup that arises when California enacted the EWRA and use multiple identification strategies to isolate the law’s effect on the inventive output of firms. We disentangle two causal pathways, industry and headquarter location, by which EWRA affects manufacturers. We find that EWRA increased the environmentally focused inventive output (i.e., “green” patents) of affected firms in California by nearly 14% and by nearly 8% for firms in other states. Interestingly, we also observe spillover effects—EWRA increased other inventive output (i.e., patents other than green patents) of affected firms in California by nearly 41% and by nearly 24% for firms in other states. Managerial implications: Our study provides important insights for managers and policy makers by empirically quantifying the impact of recycling standards on environmentally focused inventions and by identifying spillover effects for other inventions.