The Endowment Effect in the Circular Economy: Do Broken Products Face Less of a Trading Barrier Than Intact or Repaired Ones?

Abstract

Repairers may play a substantial role in the shift from a linear (make, use, dispose) to a more circular economy, where resources are continually reused and waste is minimized, which is therefore by definition more sustainable. Repaired defective products are usually reused by their owners or may be traded in a second-hand market. A barrier commonly associated with trading is the endowment effect, which is caused by the difference between the maximum amount buyers are willing to pay for a product and the minimum amount sellers are willing to accept for a product. The present study examined whether second-hand market exchanges face an endowment effect, including in situations where the products are broken and repairers are recruited to repair possible defects in the product. An online survey that randomly assigns participants to one of eight experimental conditions (four product types × two buyer/seller statuses) was used for this study. The results show significant endowment effects for intact products and defective products with a repairer involved, but not for defective products. Furthermore, endowment effects occur for different product types. This suggests that sellers may be reluctant to sell their products in terms of the value that buyers would want to pay for them when repairers are easily accessible, which may impede transactions from taking place. The transaction of broken products may be facilitated by designing a system whereby sellers sell broken products to repairers and buyers buy repaired products from repairers.