Should Lars Pollute at Home or Away? Lars Olsen is the CEO of Electronic Manufacturing Inc. EMI is a large manufacturer of hi-tech wireless mobile devices. Recently the government of Homeland, where EMI'S principal factory and all of EMI'S consumers are located, has brought in new environmental legislation that regulates the disposal of the toxic materials that go into the manufacture of electronic devices. This regulation makes manufacturers responsible for the recycling of any electronic devices that contain toxic materials, even after consumers have purchased the devices?

This new policy will be costly for EMI. EMI will have to charge distributors, and thus consumers, a large, refundable deposit in order to get the devices back. As well, EMI will now be responsible for the costs of recycling the devices. Sales will fall, and costs will rise. EMI has no choice but to comply. Lars's job is to recommend to the board of directors of EMI how to lower the costs of recycling. The board will collectively make the final decision on what to do. Lars knows that, in his recommendation, he should consider not only the internal costs to EMI, but also the external costs to society of the considerable pollution caused by the recycling process. The emissions from the recycling process will cause health problems for the whole country. Because the emissions will not break down, but instead will accumulate in the national environment, their clear anup will become a big problem in the future. Lars sees only two ways to proceed. Firstly, EMI could locate its recycling facility at its principal factory in Homeland to take advantage of the transport efficiency of employing back-hauls of recycled devices from distributors?

Secondly, EMI could ship the returned devices to Awayland, a country on the west coast of Africa where labour is much cheaper, and contract with a local recycling company there to dispose of the devices. Homeland has strong environmental laws and a legal system that makes polluters pay for the damages that they cause. Its citizens earn high incomes, and any days that they take off work because of environmental sickness lose them a lot of money Healthcare in Homeland is very good, but also very expensive. Capital markets in Homeland are very efficient and interest rates there are low. The GDP growth rate in Homeland is also low because its economy is already large and highly developed. Returns on investment are stable and moderate?

Awayland has environmental laws that are very favourable to polluters. Emissions are legally permissible and protected unless specifically forbidden by regulation. Awayland currently has no regulations regarding electronic waste, and is unlikely to change this policy. Many people are unemployed in Awayland, and average incomes are very low. Healthcare is inexpensive, but rudimentary. Capital markets in Awayland have not yet developed, so interest rates are relatively high, as are returns on investment. Awayland is starting to industrialize, so its GDP is growing quickly. Which option should Lars recommend to he board?