A Selected Survey of Game Theory Models with Government Schemes to Support Circular Economy Systems

Abstract

This paper reviews the public schemes and mechanisms available for firms to activate and successfully organize circular economy settings. Because of the nature of such negotiated incentives, we focus this survey on game theory models and emphasize three main fields: (1) analysis of public schemes proposed by governments to sponsor the formation of circular economy systems; (2) investigation of government actions in sponsoring these schemes, which can either be active or passive; and (3) analysis of circular economy options used in game theory with government interventions, linked to the waste pyramid framework. Within these fields, we identify six research gaps that future research can address to contribute to this domain’s knowledge. Furthermore, by crossing these three dimensions, we derive 200 possible fields that can be populated with future research and emphasize the ones that require more contributions from researchers in the future.

1. Introduction

Circular economy (CE) systems encompass both forward and reverse activities in a unique system that optimizes all directional flows to minimize waste and increase the value of returns [1]. Although the CE has recently received attention from stakeholders, managing such complex activities may lead to inefficiency and marginal economic attractiveness of these solutions [2,3,4,5]. However, governments can put in place supporting mechanisms to increase firms’ interest in closing the loops and, therefore, play a role as either an enabler or an accelerator with respect to sustainability targets (e.g., both the 2023 and 2050 agendas). Nevertheless, some questions still need to be answered: Which mechanisms have governments created to help firms accelerate the implementation of CE systems? Which of these mechanisms are most frequently investigated in the literature, and why? How do the public incentive mechanisms for CE systems link to the various CE options [6], specifically disposal, recycling, reuse, reduction, and recovery?

To properly answer these questions, we examine the recent developments in the literature analyzing the synergies between public mechanisms and CE system implementation. By investigating these links, we seek to enhance our understanding of how public incentives affect CE adoption; this, in turn, will guide future research on potential paths to pursue and thus contribute more effectively to advancing our existing knowledge base. Indeed, while the connections between public policies and CE system implementation have been frequently studied in the literature, our research is driven by three primary motivations: (1) We detected a misalignment between the incentive schemes designed by the EU and those available for governments to engage firms, supply chains, consumers, and institutions to create and manage a circular economy system. Therefore, we seek to identify the incentive schemes that have already been researched, as well as those that still require attention from researchers and scholars. (2) The government can play either an active or a passive role in determining the mechanism to be adopted. In the former, it defines the intervention policy independent of actions taken by firms, supply chains, consumers, and institutions; in the latter, it adjusts the reward/penalty mechanisms considering the actions of others. In this survey, we identify which types of government behavior have been investigated, distinguishing between active and passive behaviors. (3) Finally, we distinguish between cases in which circular economy options are well designed and implemented and cases in which circular economy strategies must be designed on an ad hoc basis. Hence, we explore the most researched circular economy options in the literature.

To pursue the objectives of this survey, we selected a set of game theory papers that deal with circular economy systems in which public incentives play an important role. We focused on game theory papers because of both the nature and the primary function of public mechanisms; in fact, public mechanisms can alter players’ actions and strategies to pursue specific targets (e.g., reduction in material waste) and modify an entire corporate strategy (e.g., enhancing corporate social responsibility), as well as impose sustainable directions to undertake that can be either general (e.g., sustainable development goals) or very specific (e.g., the compulsory adoption of electric vehicles in some European cities). Therefore, we focus on games in which government schemes were present, in either active or passive form, leading firms to adjust their strategies to consider the policy implications related to these mechanisms. We started with Google Scholar, searching for “game theory papers government schemes and incentives for circular economy” and selected an initial batch of 221 papers. This batch was formed using the following criteria: focus on circular economy systems and use of game theory with government interventions and incentives.

Among the papers we initially found, we disregarded papers that included one single decision maker, papers offering government incentives and interventions only as possible research improvements and extensions, and papers that did not address circular economy systems. Overall, we screened 20 journals, specifically: Management Science, Operations Research, Manufacturing and Service Operations Management, European Journal of Operational Research, Annals of Operations Research, International Journal of Production Economics, Computers and Industrial Engineering, Journal of Cleaner Production, International Journal of Production Research, Transportation Research, Resources, and Conservation and Recycling. Thereafter, we were left with 66 papers that were taken from some of the aforementioned journals, a list of which along with the related descriptions and summaries of results is displayed in Appendix A.

According to the approach outlined, this survey identifies research gaps in the existing game theory literature that model CE systems with government intervention. After examining available schemes for CE implementation, differentiating between active and passive government roles, and investigating CE options, as [6] described, we pinpoint a series of research gaps suitable for exploration. Specifically, there is a need for academic research into government schemes associated with comprehensive waste management, their role in setting targets for social inclusion and involvement within CE systems, the influence of government policies and enforcement constraints, and the advantages of a combined passive–active approach by governments. Furthermore, there is a need to understand how government schemes might bolster CE systems, especially in more complex and challenging scenarios.

Moreover, this survey contributes to knowledge creation in the field of CE implementation and government schemes by intersecting three dimensions: government mechanisms, the active and passive roles of governments, and CE options (disposal, recycling, reuse, reduction, and recovery). By delineating these dimensions, we reveal additional areas that should be explored by future research to increase the body of knowledge in this domain, specifically: examining end-of-waste and tradable recycling credit schemes across all CE options, advancing research on government schemes that render standards more circular, and regulations linked to material taxation and extended producer responsibility (EPR) with a focus on contract duration and conditions. Beyond these areas, new research should also investigate government behaviors and specific waste hierarchy options, including promoting a social economy through activities that foster a circular economy, establishing green deals and clusters at various levels, favoring environmental labeling and certification, implementing landfill and incineration bans and taxes, as well as reducing VAT on green products and services. Additional studies should delve into a mechanism that specifically favors R&D support for value-chain-integrated projects and investment in new circular activities, exploring the passive roles of governments, and expanding to include disposal and recovery options. Finally, while government schemes linked to subsidies have been extensively studied, this demands further attention, particularly in the areas of the circular pyramid recognized as reduction and recovery.

The remainder of the paper is structured in the following way: Section 2 reviews the public mechanisms that governments in the EU make available to firms and supply chains to implement CE systems and links them to the literature review. Section 3 explores the types of behavior that governments have undertaken in the game theory models under investigation, distinguishing between passive and active approaches. Section 4 searches for circular economy options made available in the waste pyramid (reduction, reuse, recycling, recovery, and disposal) to verify which options have been most heavily explored in the game theory literature. Subsequently, Section 5 and Section 6 reveal several research gaps and identify research avenues for scholars and researchers who seek to contribute to the circular economy literature using game theory approaches to study government interventions, to complement the analysis of circular economy systems conducted by [7]. Finally, Section 7 concludes and opens further discussions regarding the public schemes available for circular economy systems and megatrends like COVID-19, digital transformation, metaverse technologies, and smart cities.

2. Review of Public Schemes for Circular Economy Systems

Public interventions aimed at influencing circular economy systems function as real incentive mechanisms to scale up investments and behaviors in given countries and territories. The growing attention given to the circular economy has resulted in several reviews [2,3,4,5]. In the domain of sustainable operations, we refer the reader to the works of [8,9,10,11] for circular business models. However, to the best of our knowledge, little attention has been paid in the literature to a comprehensive review of game-theoretical models of a circular economy. This is an important topic as circular economy interventions by governments and policymakers influence firm strategies. As a result, the use of game theory is a natural tool to study how firms respond to these circular economy interventions. Furthermore, for many of these interventions, the government may play either a passive role (i.e., the intervention is exogenous) or an active role (i.e., the intervention is endogenous). In the former case, the government decides the public schemes available and the related mechanisms, which remain fixed for a certain amount of time, while companies set and adjust their strategies by considering the fixed terms defined in such mechanisms. In the latter case, the government announces some public schemes available to implement CE systems, and companies recognize the existence of such mechanisms, also knowing that the government adjusts the terms of such schemes according to how companies set their strategies.

Given the widespread importance of the circular economy, policymakers at the national and international levels have drafted legislation toward a circular economy. For example, Germany enacted the “Closed Substance Cycle and Waste Management Act” [5]; in 2002, Japan introduced the “Basic Law for Establishing a Recycling-Based Society” [12]; China followed in 2009 with the “Circular Economy Promotion Law of the People’s Republic of China” [4]. Finally, at the international level, the European Union has come up with the Circular Economy Action Plan based on the EU’s 2015 Circular Economy Strategy [13]. Before discussing the details of the game-theoretic models surveyed, we present the definitions of circular economy and the twenty government interventions.

The most common definition of a circular economy was introduced by the Ellen MacArthur Foundation, which defined a circular economy as “an industrial economy that is restorative or regenerative by intention and design” [6]. Ref. [10] define a circular economy as “design and business model strategies [that are] slowing, closing, and narrowing resource loops”. Recently, ref. [14] defined a circular economy as “a regenerative system in which resource input and waste, emission, and energy leakage are minimized by slowing, closing, and narrowing material and energy loops. This can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling”.

A well-designed circular economy incentive should create benefits for society at large and favor conditions for closing the loops [6]. Accordingly, the purpose of incentives can be heterogeneous. These can also assume various forms, aimed at supporting the commercial development of businesses linked to the circular economy, removing entry barriers to specific sectors or markets, favoring the adoption of new technology, developing original competencies and skills, and injecting new capital to contribute to both capital and operating expenditures, namely, capex and opex, respectively [11].

In recent years, the extant literature has exhibited a strong interest in studying incentive mechanisms that governments or other parties can make available to other parties and (generally speaking) stakeholders to drive behaviors, actions, and investments aimed at sustainable development. In general, refs. [11,15] define an incentive for sustainability as follows: “…a mechanism that aims at addressing market failures that prevent or delay the transition towards circular products, services, and solutions. They play an instrumental role in pricing negative externalities, steering markets towards sustainability and driving behavioral changes. In addition, awareness-raising can be a powerful tool to complement incentives by empowering consumers to make more sustainable choices which, in return, may stimulate the market to offer more sustainable products and services at an affordable price. Incentives have the ability to create value, de-risk investments and improve the competitiveness of value chains that bring net environmental benefits to the economy and society when compared with linear economies. Incentives in circular economy may inspire applications of digital technologies leading to smart circular economy systems”.

Although the topic of government intervention has received a great deal of attention, there is a shortage of comprehensive analyses of all available schemes in the extant literature. [15] identified 20 schemes through which governments can influence circular economy strategies within the European Union. Herein, we briefly describe the details of these schemes. Readers may refer to [11] for an analysis of the strategic implications, and details on the social, environmental, and economic impacts.

• End-of-waste mechanism. An “end-of-waste” mechanism seeks to facilitate the adoption of procedures to sustainably treat waste and obtain mutual recognition of the possible outcomes. When certain waste ceases to be waste and becomes either a product or a secondary raw material, the circular economy system must demonstrate that its use will not lead to adverse environmental or human health impacts. Within the papers we analyzed, only three (4.84% of the surveyed papers) studied this mechanism. This points to a lack of investigation of the intersection between waste management and circular economy practices in the extant literature. When modeling a game, the most frequently adopted perspective to analyze the business model has been through sales, using the advantages of a circular economy rather than reducing related waste.
• Render standards more circular. Public incentives examining the standardization of materials and goods seek to favor the use of recycled materials, and product reparability, reusability, and recyclability. Therefore, they play an essential role in determining the standards to be applied in a specific industry, especially when using secondary material. In fact, the performance of secondary material must follow the same targets as the virgin material. Nine papers (14.52% of the surveyed papers) investigated the circular economy benefits of this mechanism. Considering a game theory model in a circular system, the adoption of more circular standards can be achieved by making investments and/or changing suppliers.
• Ban products when more circular alternatives exist. These interventions push firms to adopt more circular solutions in terms of reducing the volume and the weight of packaging, favoring the use of recycled goods or goods with high recycled content, and searching for compostable materials that will add nutrients to the ecosystem. None of the surveyed papers analyzed the impact of this mechanism on CE systems, most likely because of the coercive policy embedded in games.
• Promote a social economy through activities fostering the circular economy. These incentives seek to promote social involvement in the collecting, sorting, and repairing of some specific waste streams (textiles, furniture). This incentive can radically impact the social sphere since new repair and reuse shops can be opened. Although this mechanism has a very high potential to increase the social impact of a circular economy, surprisingly, it has generally been disregarded in the literature, as only one paper (1.61% of the surveyed papers) pursued an investigation in this direction. In most of the game theory papers we screened, the players’ objective function is linked to monetary outcomes (e.g., profits). At the same time, the analysis of this mechanism requires the development of utility functions, which are associated either with society directly, with the government, or with the firms considering the existence of new and atypical social businesses.
• Increase the guarantee period. Through this mechanism, firms’ incentive to increase the warranty period is linked to the indirect need to increase product durability, which leads to longer life cycles. Among the papers we surveyed, this mechanism was not investigated. This is primarily attributable to the fact that most games develop static models for studying the guarantee period, while their proper implementation and analysis require dynamic approaches.
• Favor R&D support for integrated value-chain projects and investment in new circular activities. This incentive mechanism seeks to promote initiatives along the supply chain, integrate firms’ business models, favor joint investments, and establish well-functioning CE systems. Governments pay a fraction of the required investments, independent of the value chain tier subject to the intervention, and under the condition of highlighting the fundamental contributions offered by the new circular economy project. Only three papers (4.84% of the surveyed papers) analyzed this mechanism. This is quite surprising since cooperative mechanisms have been widely investigated in game theory. However, according to our findings, such mechanisms have not been applied to government intervention. As a result, future research should be open to integrating a circular economy and R&D, as a modern circular economy system requires sophisticated return approaches (e.g., smart collection options).
• Set up green deals and clusters at different levels. This kind of incentive can be effectively applied in all contexts where the value chains are split among numerous, independent, globally dispersed actors whose activities are not integrated and whose related knowledge is limited. This incentive mechanism favors collaboration, supporting the creation of clusters of firms that cover the supply chain stages and tiers, whether globally or locally, and giving rise to new strategic paradigms such as industrial symbiosis and industrial ecology. This incentive mechanism has been largely disregarded since only one paper (1.61% of the surveyed papers) analyzed its related trade-off. This evidence allows us to encourage the development of game theory models inspired by new circular paradigms like industrial symbiosis and industrial ecology, especially considering the modern megatrends of globalization and internationalization, the expansion of which is surely favored by this mechanism.
• Favor environmental labeling and certification. One primary challenge faced by circular economy systems is effectively communicating with society about the real instruments and the true benefits obtained through circular actions and practices. Incentives based on favoring environmental labeling and certification seek to encourage consumers to engage in sustainable behaviors and make sustainable choices by demonstrating the circular economy and sustainable impacts. Therefore, such incentives seek to demonstrate firms’ commitments truthfully and wish to preserve the environment through circular economy systems. To our great surprise, only two papers (3.23% of the surveyed papers) analyzed this mechanism. However, it can substantially help in diffusing a circular culture in society and demonstrate both firm and government actions and efforts in favoring sustainable development through a circular economy. Future research could investigate how these outcomes are reflected in some social outcomes, such as consumers’ willingness to purchase goods with green labels, their appreciation of the quality of the green goods, and their tendency to adopt circular behaviors and actions.
• Communication about the repair of products. Public authorities perceive that the incentives to design products through circular principles are only very effective if consumers are fully knowledgeable of the potential offered by circular economy content. Particular attention has been given to communication about repairing products, which seeks to extend the product’s life cycle by informing consumers of its properties, and about easily repairable components. It is interesting to note that none of the papers we screened analyzed this incentive mechanism. None studied models in which consumers can repair their goods; instead, models allow people the opportunity to return and substitute their goods. This incentive calls for papers that dynamically study the durability of goods (as they aim to extend the product life cycle), as well as the implementation of some digital platforms (e.g., augmented reality to guide people in product repairs [16]).
• Material taxation. This mechanism seeks to capture negative externalities generally visible from traditional economic levers such as prices, carbon emissions, or ecosystem degradation. To consider these externalities, public authorities can use material taxation, a de facto penalty mechanism aimed at incentivizing green materials. Among these mechanisms, public authorities have introduced tax systems based on carbon, energy, resources, and materials. Furthermore, positive incentives have taken the form of subsidies, the amounts of which are determined by evaluating public investment projects based on their full societal impact. As shown in Figure 1, this mechanism’s flexibility—linked to incentives or penalties—makes it very appealing in CE studies. As a result, we found that 29.03% of the surveyed papers developed various game theory models and forms of interaction between governments and other stakeholders.
• Modulation of EPR fees. Extended producer responsibility (EPR) is an environmental instrument public authorities can put into place to make producers responsible for managing the entire product life cycle. For example, producers pay EPR fees based on quantities of products (e.g., electric and electronic equipment and textiles) placed in the market. Producers can pay such fees to ad hoc institutions, namely, producer responsibility organizations (PROs), in the case of the collective fulfillment of EPR. Although the mechanism structure perfectly fits with CE systems to engage producers in taking responsibility for the goods injected into the ecosystem, none of the surveyed papers investigated its real effects using game theory models.
• EPR: adapting contract duration and conditions. Circular economy systems need to be more certain in terms of time, quantity, and quality of returns. Therefore, when EPR schemes are in place, contractors may be reluctant to make important investments in infrastructure and capex if the circular system does not ensure sufficient waste materials. Accordingly, public authorities have defined a mechanism by which to adopt the contract duration and conditions according to circular economy dynamics, which are most likely linked to reductions in economic and financial risks in their investments. It is interesting to note that in contrast to mechanism 11 (modulation of EPR fees), which the literature has fully disregarded, mechanism 12 was used in 22.58% of the surveyed papers. This reveals that the literature has shown interest in investigating mechanisms leading to the “adaptation” of agreements, deals, and contracts between governments and stakeholders rather than using “penalizing” systems to oblige other parties to adopt certain strategies.
• Green public procurement: apply environmental (circularity) criteria (global environmental performance, recycled content, long life). This mechanism is linked to procurement activities for public expenditures, which should support the circularity of products and services. Indeed, firms and stakeholders can access such mechanisms when they include environmental/circularity criteria in the purchasing process and apply environmental labels that demonstrate the use of circularity criteria in their purchasing decisions. Although procurement impacts CE systems, none of the surveyed papers investigated this mechanism in the relationships between governments and stakeholders.
• Mandatory recycled content. A scheme that imposes mandatory recycled content is most likely seen as a harmful mechanism for firms that have old industrial systems, and constraints of this kind generally require radical system changes. Indeed, this mechanism stimulates the demand for recycled materials and consequently favors access to other incentives supporting R&D investments and production facility upgrades. As is the case for mechanism 13, mechanism 14 has also not received sufficient attention in the literature linked to game theory and government interactions.
• Landfill and incineration ban/tax. The current state of technology surrounding landfills and incinerators does not guarantee circularity. Since technological changes require significant investments, public authorities have identified perverse incentives every time firms send waste to landfills or incinerators to reduce this flow. Therefore, a ban and a tax, either separately or together, can be imposed on firms preferring landfilling to circularity, which is proportional to both the type and the amount of waste. This mechanism was explored in 3.23% of the surveyed papers. However, most of the waste is currently sent to landfills and incinerators in several countries (e.g., in Europe, 60% of the waste is landfilled or incinerated [11]).
• Waste producers pay the full waste management cost. This scheme is highly diffused and applies to both households and firms. Defined as pay-as-you-throw, trash metering, or user pay, the mechanism is based on a rate that waste producers pay based on the amount of waste they present to the municipality or the local authority to be collected and treated. Sometimes, the fee can be modeled according to other features, such as producer size and income. Although this mechanism offers opportunities for governments to define the cost of waste by developing ad hoc functions, none of the surveyed papers investigated its potential.
• Lower VAT on green products and services. A mechanism linked to a lower tax for circular and sustainable goods rather than traditional products and services is quite intuitive and appealing. However, it might be difficult to apply since the definition of circular goods is not unique. This mechanism was applied in only 6.45% of the surveyed papers.
• Addressing waste exports from the EU. Waste exports are among the most challenging processes that are monitored by a public authority since waste can be contaminated and dangerous. Therefore, independent of how the fees are computed, better enforcement of existing requirements and monitoring activities over the territory are essential to combat illegal waste exports. Along with such penalties, public authorities must identify incentives for engaging in recycling and circular procedures and substituting hazardous materials with friendly materials. Although this mechanism links to an important and delicate issue that must be solved within CE systems, none of the surveyed papers investigated its implications using game theory models.
• Tradable recycling credit schemes. This mechanism is very similar to the emission trading scheme. In fact, this is a tradable allowance system permitting the use of a certain amount of primary material based on the presentation of evidence that a certain amount of secondary material has been used “somewhere else”. Adopting circular economy principles and using a large quantity of secondary materials generate a certain number of credits; all credits exceeding the minimum requirement can be sold to end users of primary material to compensate for their unsustainable behaviors. This mechanism has been widely investigated in the literature, including 25.81% of the surveyed papers.
• Subsidies. Subsidies provided by public authorities are financial rewards transferred from the public budget to private actors and stakeholders who are engaged in adopting circular-economy-based behaviors. The subsidy mechanism targets CE systems aimed at preventing market failures while achieving economic, environmental, and social targets. This mechanism has been the most popular among the 20 mechanisms governments make available, and was investigated by 63.63% of the surveyed papers. Subsidies support the economic value obtained from a CE, which is negligible in most cases, rendering the business models economically unfeasible and unattractive.

3. Active and Passive Government Behavior

The government can play either an active or a passive role when designing an incentive. This distinction is extremely important in the context of game theory since it determines how firms, supply chains, consumers, institutions, and all stakeholders involved in a circular economy should respond to modifications of governments’ behavior and actions. Among the papers we included in this survey, the government adopted an active role in 44% of the cases while undertaking a passive role in 56% of the cases (Figure 2).

When an active role is adopted, the government has complete involvement in the moves and various stages of the game. The government has its own payoff function, which must either be maximized (e.g., maximizing social welfare and utility) or minimized (e.g., reducing the environmental impact on society). The game is designed in both cases by considering the government’s actions and strategies. When an active role is adopted within a circular economy framework, it is exemplified by setting either the amplitude of the incentive to support other players in the implementation of the circular economy system or the amplitude of the penalty to be imposed on the players who are not able to reach some targets and undertake strategies that are not aligned with the government’s payoff function. In these cases, the government influences the actions of the other players, and, at the same time, it is also influenced by the strategies adopted by other players.

Among the papers we include in this survey, the active role played by the government was exemplified by the following: subsidy to the consumer, OEM or recycler, tax rate, penalty and reward mechanism, incentives aimed at compliance, greening level threshold, cap and trade system, carbon cap, and enforcement level. We now explicitly link the various active roles undertaken by governments with the various schemes that have been addressed in the literature. Specifically, the government plays an active role by providing a subsidy to the consumer [17,18]; subsidy on greening efforts [19]; subsidy to only a qualified recycler [20]; production levy on the manufacturer and a subsidy to the recycler [21]; taxing the OEMs based on sales and distributing the funds to collectors based on waste disposal activities [22]; fixing both the tax for manufacturers and the subsidies for recyclers, including those for eco-innovation [23]; dynamic tax and subsidy mechanisms which are more effective than the static mechanisms [24]; tariffs, tradeable permits as well as government certificates and deregulation [25,26,27]; combining taxes with environmental impact levels [28]; setting the supervisory level when it is a national government and fixing the enforcement level when it is a local government [29]; disposal fee and recycling subsidy [29]; and combining a set of reward and penalty mechanisms to incentivize the adoption of some types of behavior [30]. In addition, the government also intervenes actively by setting incentives and penalties depending on strategies aimed at compliance vs. violation and implementation vs. non-implementation [31]; cap and trade, carbon tax, or carbon cap [32,33,34]; and taxes and environmental impact levels [28]. Finally, the government can set compensation for players according to the recycling rate they achieved [35], setting a greening threshold level that firms should attain [36], defining an optimal carbon tax for players [33,34,37]. When the government defines these schemes, it can play either the role of a Stackelberg leader (e.g., it sets the amplitude of incentives and penalties after learning of the other players’ strategies) or the role of a Stackelberg follower (e.g., the policies are set considering a leader’s final move), or by neither being a leader nor a follower since the game is played à la Nash.

When the government plays a passive role, both the incentive and penalty schemes are already exogenously defined and become common knowledge among firms playing the game. Indeed, modeling the government as a passive player provides the advantage of focusing on firms’ strategies and actions and obtaining more tractable solutions. Analytically, the optimization problem is now composed of one less objective function (the function of the government), and there are no interactions between government and firm strategies that might result in non-linear solutions. Hence, the government’s passive role allows firms and decision-makers to evaluate how their strategies and business model outcomes will change if the government decides to modify a specific regulation or component.

Among the papers we include in this survey, the government’s passive role influenced firm strategies and, consequently, the course of the game through the following mechanisms: taxing the waste produced [38]; exogenous emissions cap [39]; a carbon tax and trade-in subsidy for new products [40]; subsidies or tax exemptions for increasing the recycling rate, the eco-design, remanufacturing, or the return rate [41,42,43,44,45,46]; carrot and stick policy where a subsidy is given to the consumer for trade-in and purchasing a new product while a tax is imposed on emissions [47]; rewards based on the recycling rate, and punishment based on the used products that were not recycled [48]; reward–penalty mechanisms based on collection target quantity [49,50]; reward–penalty mechanism based on collection target quantity and reward–penalty intensity [51]; and fixing the return level based on which firms experience a reward or penalty [52]. Among the other passive schemes available, the literature has particularly emphasized green deals and identifying regulations to influence consumers’ environmental awareness [53]; setting either a baseline or premium warranty [54]; defining compensation equal to the salvage value of the used product [55]; defining carbon trading and carbon emissions [56,57]; setting a carbon cap, carbon offset, or carbon trade [58]; setting a greening level threshold [59], setting the level of technology intensity [60], and setting the reward and penalty mechanisms [61,62,63]. Finally, the studies have also focused on setting the boundaries for emissions and an allowance allocation mechanism [64], and setting an emissions cap [54,65,66].

In most of the passive mechanisms, the analysis of the incentive developed by exploring how firms’ strategies and profits would change when the exogenous decision linked to the incentive was eventually modified by the government [1].

4. Circular Economy Options

When applied to the circular economy, public schemes and interventions aimed at creating incentives can support either existing circular economy systems or create completely new circular-based projects. Under the former, the schemes available are limited by the circular network and technologies, which makes the alignment between schemes and systems more difficult. In the latter, circular systems can be created on an ad hoc basis, and modern versions such as a smart circular economy can also be pursued. Furthermore, government schemes can be linked to either positive or negative implications for circular systems. In the former, the scheme is based on incentives that take the form of opportunities for firms and stakeholders; in the latter, the scheme is based on penalties that force firms and stakeholders to modify their strategies and behaviors accordingly [67].

Among such schemes, the Ellen MacArthur Foundation has identified five key targets that inspire a circular economy, and the foundation has summarized them in a circular pyramid, as follows: reduction, reuse, recycling, energy recovery, and landfill. These options have been explored either as standalone options or as joint options, operating in tandem. For example, reuse/recycling was jointly analyzed in nine cases (14.51% of the surveyed papers). Consequently, the 66 papers analyzed in this survey used 113 waste pyramid options overall, whose frequency is displayed in Figure 3.

The most frequently used option studied in the literature is recycling, which was analyzed 38 times (corresponding to 31.86% of the surveyed papers). This result is not surprising since the recycling principle has recently gained popularity all over the world due to enforcement and constraints imposed by legislation. Governments have identified considerable restrictions for the recycling of materials and goods in several sectors and at different levels within countries. In fact, the whole recycling process consists of collecting and processing end-of-life and end-of-use (EoL/EoU) materials and goods that are transformed into new products instead of being destined for the landfill. The use of game theory appears quite appropriate for modeling such options since interested parties (e.g., manufacturers, OEM, recyclers) seek to appropriate the residual value of EoL/EoU output to transform it into materials, inputs, and ingredients, either within the same industry or in other business contexts and applications.

The second most investigated circular economy practice is reuse, which was analyzed 29 times (25.66% of the surveyed papers). In fact, the reuse of materials and goods refers to the handling of operations within the scope of avoiding waste products. Reusers, whether firms or consumers, can take marginal operational steps to maintain their functionality and consider possible alternative applications [68]. These features have inspired research exploring the reuse option since the possible reuse of materials and goods allows interested parties to negotiate the reuse option, making it a good fit for game theory studies. In fact, parties can use a collection program or deals to repurpose materials and goods in other applications for which other parties may have a certain interest.

Disposal was investigated 23 times in the literature (19.47% of the surveyed papers). This option has been applied in all cases in which the output of circular economy systems cannot be subject to reduction, reuse, or recycling. Using coercive mechanisms, such as material taxation, governments can penalize firms any time the disposal option is adopted. Furthermore, even in the absence of government intervention that punishes the disposal option, firms must face a cost linked to disposal.

The less investigated options are reduction and recovery, appearing 14 and 12 times, respectively (corresponding to 12.39% and 10.62% of the surveyed papers). The literature generally connects the reduce principle to the concept of eco-efficiency, which basically signifies “doing more with less” [69]. In fact, eco-efficiency links to lean approaches, according to which firms should create more goods and services while using the least amount of resources and creating a minimal amount of waste and pollution [70]. In this sense, the literature recognizes the reuse principle’s scope as a green process innovation target rather than a circular economy objective. Similarly, recovery is far from recognized as a circular economy option since the sole outcome firms can obtain is energy. In fact, all EoL/EoU materials and goods that can neither be reused nor recycled are converted into energy in specific facilities, whose output is most likely electricity. This feature has limited appeal in investigating recovery options through game theory.

5. Contribution #1: Future Directions in the Area of Game Theory Models and Government Mechanisms

This section focuses on the first contribution of this survey paper, which consists of identifying areas that still need to be developed by future research using game theory models that include government mechanisms to implement CE systems. Considering the evidence emerging from Section 2, Section 3 and Section 4, we seek to answer the research questions stated in the manuscript: Which mechanisms have governments created to help firms accelerate the implementation of CE systems? What is the role of governments in sponsoring the CE incentive mechanisms? How do the public incentive mechanisms for CE systems link to the various CE options, specifically, disposal, recycling, reuse, reduction, and recovery?

Our first contribution to this field consists of the identification of six research gaps, which directly connect to the previously mentioned research questions, which shed light on the following topics: how the unexplored public mechanisms can assist firms in accelerating CE system implementation; which behavior should governments adopt to create more knowledge in this domain; and the which public incentive mechanisms should still be explored in relation to the various CE options described in the circular pyramid.

5.1. Future Directions in Public Schemes and Game Theory

This subsection offers insights into the directions that future research in game theory should take, particularly when involving public schemes for CE system implementation. The evidence emerging from Figure 1 indicates some incentive schemes with a score of 0 or very low, suggesting that specific mechanisms have likely been disregarded by previous literature. In other words, each under-investigated mechanism represents a potential area for further exploration in future research. Therefore, we suggest areas requiring additional research by highlighting the existing gaps in current studies.

Gap 1. The literature requires more research focusing on the analysis of public schemes related to “waste management” when implementing circular economy systems.

As shown in Figure 1, the mechanisms “1. End of waste”, “15. Landfill and incineration ban/tax”, “16. Waste producers pay the full waste management cost”, and “18. Addressing waste export from EU” have generally been under-investigated using game theory. The main factor that drives this evidence (which will later be reinforced in Section 5.3) links to the marginal convenience firms and stakeholders realize in implementing a CE system to manage low-value output. In fact, CE systems generally deal with the recovery of value to repurpose materials and goods, assuming that the returns have a sufficiently high value. Future studies should explore waste management mechanisms within circular economy systems, considering that waste is still an important issue worldwide. For example, according to [71], the US generates approximately 258 million metric tons of municipal waste annually, followed by China with 220.4 tons, and India with 168.4 tons. Hence, more research is needed to push individuals, firms, and stakeholders to set up new plans to reduce the amount of waste, with support through public incentives.

Gap 2. The literature requires more research focusing on the analysis of public schemes related to “social inclusion and involvement” when implementing circular economy systems.

This gap emerges when analyzing the following schemes: “4. Promote the social economy through activities fostering the circular economy”, “5. Increase the guarantee period”, “8. Favor environmental labeling and certification”, and “9. Communication about the repair of products”. The proposed schemes have been under-investigated in the literature, although they most likely focus on individual inclusion and involvement through promoting social activities, allowing people to learn how to repair goods, extending the guarantee period to facilitate longer use of goods, and communicating the environmental impacts of goods and services to inform people of the positive effects of consuming them on sustainability and future generations. To consider these mechanisms within game theory models, future research should rethink the demand functions and consider people and society as active players who optimize a given utility function.

Gap 3. The literature requires more research focusing on the analysis of public schemes related to “government policy enforcements and constraints” when implementing circular economy systems.

As is evident in Figure 1, a gap exists relative to the investigation of mechanisms based on a government’s scope for enforcing a circular economy, which is reflected in the following schemes: “3. Ban products when more circular alternatives exist”, “11. Modulation of EPR fees”, “13. Green public procurement”, “14. Mandatory recycled content”, and “17. Lower VAT on green products and services”. Interestingly, these mechanisms are based on harmful policies, which signals that the current literature using game theory models to evaluate government mechanisms has primarily focused on positive instruments. Future research should more closely investigate the effectiveness of these mechanisms, keeping in mind that they do not seek to reduce firms’ profits and gains (considering that the game theory models aim to optimize payoff functions) but, instead, present opportunities to better use natural resources, make and transport goods efficiently, and increase consumers’ willingness to purchase such goods, also pushing for complementarity [72].

Gap 4. The literature requires more research focusing on the analysis of public schemes related to “favoring green circular supply chains” when implementing circular economy systems.

Finally, an analysis of Figure 1 reveals that the literature has under-investigated government mechanisms that encourage firms to implement circular systems within their supply chain, as well as to collaborate in districts, cooperate in order to develop industrial symbiosis, and invest in joint improvements in industrial ecology within a certain sector. This evidence comes from the results linked to two schemes, specifically: “6. Favor R&D support for value-chain-integrated projects and investment in new circular activity” and “7. Set up green deals and clusters at different levels”. Therefore, this is a very peculiar aspect of the survey, since collaborative plans in supply chain management and distribution channel research are extremely popular, while it clearly emerges that this area should be better researched for future circular economy systems.

5.2. Future Directions in Government Behaviors and Game Theory

Regarding the analysis of behaviors, the literature is reasonably balanced between active and passive roles that governments play in games, demonstrating the possible opportunities and potential drawbacks in both cases. However, active and passive behaviors have been modeled in mutually exclusive ways, that is, by focusing on one or the other. Instead, when establishing or modifying rules and boundaries for new public schemes, governments leave other schemes unchanged and active. Even when governments take an active approach, modifications occur in one or a few mechanisms rather than in all of them. Therefore, we identify the following research gap:

Gap 5. The literature requires more research focusing on the analysis of public schemes using a mixed active–passive approach when implementing circular economy systems.

Accordingly, future research in this area should undertake a mixed active–passive approach in which the government’s behavior is simultaneously analyzed. For example, game theory models can be developed with a government’s objective function in mind, including both passive and active incentive schemes. Regarding passive schemes, which firms and stakeholders know before the game starts, objective functions can include subsidies, tradable recycling credit schemes, material taxation, and EPR on contract duration and conditions, since their impact is already well-documented in the literature. In contrast, objective functions can include some active schemes by investigating all the mechanisms that have received less attention to date. This will increase the body of knowledge on the adoption of all possible schemes available to governments and the synergies among them.

5.3. Future Directions in CE Options and Game Theory

Although the CE options developed by the Ellen McArthur Foundation have been properly investigated in game theory models using government incentives, new developments in the area should be considered in selecting CE options from the perspective of the value of returns and product life cycles. Recently, ref. [11] proposed an advanced version of the circular pyramid, the circular economy cascade, by simultaneously analyzing these two dimensions (see Figure 4).

In most cases, CE systems are generally designed for outputs linked to the main cascade:

• Case 1. Products that are returned by the end of the life cycle and have a low (high) value can be either used for energy recovery or sent to a landfill.
• Case 2. Goods that are returned by the middle of the life cycle and have medium residual value, and hence can be recycled.
• Case 3. Products returned at the beginning of their life cycle with a high residual value are either reused or help to reduce the impacts.

From all the survey papers, it emerges that game theory models are feasible when interactions among governments and other players follow the three categories of cases, which result from the main cascade in Figure 4.

Gap 6. The literature requires more research focusing on the analysis of public schemes when implementing circular economy systems outside the circular economy cascade.

In fact, the literature has disregarded cases outside the main cascade since they require either the design of new incentive schemes or the combination of existing incentive mechanisms to manage “atypical” CE systems. As is evident when analyzing players’ objective functions, the games simulating cases out of the main cascade are shown to be unfeasible, most likely from an economic perspective. Readers should remember that players interacting in game theory models look forward to maximizing profits in most cases; therefore, games falling outside the CE cascade may result in an economically unfeasible situation [73].

For example, a new vehicle that has been seriously damaged in an accident is returned at the beginning of the product life cycle with a low residual value, and it cannot be reused or help reduce waste; similarly, a vehicle that has been properly used over its life cycle and that can continue to offer value to consumers in the secondary market and in developing countries has high residual value, even at the end of its life cycle. These two examples are out of the main cascade, signifying that any game theory model representing these situations would be unfeasible. Therefore, in all cases in which the reality or the business situation that is modeled in a game theory framework is out of the CE cascade, researchers need to design ad hoc incentives with the help of government interventions.

6. Contribution #2: Further Research Gaps in the Area of Game Theory and Government Interventions

The previous section identified the research gaps that future research in the area of public schemes for implementing CE systems should seek to fill to increase the body of knowledge in the scientific literature. However, Section 5 identifies the gaps by focusing on each of the areas we screened, which are the public schemes currently investigated in the literature, the government behaviors with respect to each of the schemes, and the analyzed circular pyramid options. In contrast, this section seeks to complement the identified research gaps 1–6 with new research gaps derived by integrating the three dimensions explored in the previous sections. This integration leads to a very detailed analysis of the research gaps, considering that we crossed 20 incentive mechanisms emerging from [11,15], two government behaviors emerging from [1], and five circular economy options derived from the [6]. Therefore, crossing these dimensions highlights the research gaps for 200 fields (obtained by 20 × 2 × 5) from which scholars and researchers can identify new directions to undertake in the future.

In

Table 1. Research areas for future development.

	Dispose		Recycle		Reuse		Reduce		Recover
	Active	Passive	Active	Passive	Active	Passive	Active	Passive	Active	Passive
1. End of waste	0	0	0	0	0	0	0	0	0	3
2. Render standards more circular	0	2	1	2	1	2	1	0	0	0
4. Promote social economy through activities fostering the circular economy	0	1	0	0	0	0	0	0	0	0
6. Favor R&D support for value-chain-integrated projects and investment in new circular activity	0	0	1	0	1	0	1	0	0	0
7. Set up green deals and clusters at different levels	0	1	0	0	0	0	0	0	0	0
8. Favor environmental labeling and certification	1	0	0	0	0	1	0	0	0	0
10. Material taxation	2	2	2	5	0	2	2	1	2	0
12. EPR: adapting contract duration and conditions	1	2	4	2	1	3	0	0	1	1
15. Landfill and incineration ban/tax	0	0	0	0	0	2	0	0	0	0
16. Waste producers pay the full waste management cost	0	1	0	0	0	1	0	0	0	1
17. Lower VAT on green products and services	2	0	0	0	1	1	0	0	0	0
19. Tradable recycling credit schemes	0	1	1	4	1	2	4	3	0	0
20. Subsidy	2	5	5	10	3	10	1	1	3	2

Areas already well investigated. Areas only partially investigated. Areas to be investigated.

, the information on the research has been highlighted in color code to identify the areas more effectively. Green highlights areas that have been extensively studied in the literature, yellow signifies areas that need further development but for which some academic research has already been performed, while red denotes areas with no contributions, the future development of which will benefit the scientific community interested in these themes. Note that all government mechanisms reporting with contributions (as observable in Figure 1) have been excluded from Table 1 since the current literature is silent on this aspect.

According to these three dimensions, we can identify the following research gaps:

• End-of-waste mechanisms have primarily been investigated in terms of recovery options when the government takes a passive approach. Future research should therefore investigate the four other circular economy options and, above all, compel the government to play an active role in determining policy.
• Render standards more circular has been quite well analyzed in various circular economy options by taking either an active or a passive approach. However, more research is needed in the area of recovery, which is now lacking.
• Five mechanisms require more investigation in terms of both government behaviors and waste pyramid options, specifically: Promoting a social economy through activities fostering a circular economy, setting up green deals and clusters at different levels, favoring environmental labeling and certification, landfill and incineration ban/tax, and lower VAT on green products and services.
• Favor R&D support for value-chain-integrated projects and investment in new circular activity has been explored in terms of the three main areas of a circular economy (reduction, reuse, and recycling) when the government assumes an active approach. More research should be undertaken in this area, also exploring the passive behaviors of governments, and developing game theory models that also refer to the disposal and recovery options.
• Material taxation and EPR: adapting contract duration and conditions requires additional development in general, also considering the recent crises linked to shortages of materials and difficulties in procurement.
• Tradable recycling credit schemes have been well investigated in the extant literature, except for the recovery option, for which we have not found any contribution to date.
• Subsidies, which represent the most investigated mechanism, should be further investigated, with governments playing an active role. Furthermore, the area of reduction and recovery under subsidy schemes can be strengthened by new research.

7. Conclusions

This survey sought to identify emerging research gaps in circular economy studies, particularly when incorporating game theory approaches with government interventions. The motivation behind this study is rooted in the critical role that a CE plays in accelerating the transition to sustainability, aligning with sustainable objectives. Although given the proximity of the 2030 agenda and the long-term goals set by the 2050 agenda, a CE has become imperative for all companies, its adoption faces many challenges. These include the need for a cultural shift in the mindset of companies, governments, and stakeholders, managing the intricate set of emerging relationships, regulatory obstacles, outdated infrastructure and technologies, and a lack of customer education in circular thinking and behavior.

With appropriate government support, these barriers to implementing CE systems can be overcome, either in part or in full. Currently, the literature offers limited insight into the availability of public schemes that support CE systems and their potential contributions to sustainability. Therefore, this survey sought to explore the existing public mechanisms for implementing CE systems using a comprehensive list of public schemes from [11,15], identifying 20 possible mechanisms to support CE creation and management. This study aimed to identify the most frequently investigated public schemes in the game theory literature. Governments can deploy these schemes using either passive or active approaches [1]: passive government behavior entails activating the schemes for firms without influencing their strategies, while active government behavior involves updating and revising the schemes in response to firms’ and circular supply chains’ strategies.

In summary, this survey identifies six key research gaps that future research in game theory within CE systems and government interventions should address. These gaps pertain to waste management, social inclusion and involvement, government policy enforcement and constraints, promotion of green circular supply chains, sponsorship of mixed active–passive government behaviors, and the analysis of circular economy options beyond the circular economy cascade.

Additionally, our study combines the 20 available incentive schemes with the two possible government behaviors (active and passive) and the five CE options from the circular pyramid to create a map encompassing 200 potential CE fields for study. This map provides a comprehensive understanding of areas that have been extensively explored, partially investigated, and those requiring further development. As these areas intersect with the three explored dimensions, the emerging gaps are highly specific, encompassing end-of-waste mechanisms, standards for circularity (with a focus on recovery), R&D support for value-chain-integrated projects and investments in new circular activities (including passive government approaches and disposal/recovery options), and tradable recycling schemes. Other mechanisms necessitate exploration in terms of both passive and active government behaviors and circular pyramid options, such as promoting a social economy, establishing green deals and clusters, favoring environmental labeling and certification, addressing landfill and incineration policies, reducing VAT on green products and services, and adapting contract duration and conditions within material taxation and extended producer responsibility. Finally, despite being the most investigated mechanism, subsidies still offer room for exploration, particularly when governments take an active role.

In addition to the research gaps we have identified, we present some additional insights and potential research avenues in circular economy studies using game theory approaches with government interventions that did not emerge from the survey. The current state of the art reveals that more research is needed in these areas:

• Consider the impact that digital technologies can have when governments offer incentives and implement digital monitoring tools to verify the actions and performance of a circular economy system. For example, the use of blockchain can be beneficial in activating smart contracts for governments when circular economy systems achieve certain targets.
• Evaluate the impact of unexpected major events—such as COVID-19 outbreaks, international tensions, wars, or the worldwide shortage of raw materials—to investigate how and if governments can help and support the formation of circular economy systems.
• Model the possible trade-offs emerging within this domain through the development of metaverse technology, which can speed up negotiations and the quality of services available to a circular economy and make government interventions more effective.
• Rethink the game theory model in terms of smart cities and how governments can promote circularity through their policies when cities offer opportunities for circular models to become smart.

Filling these research gaps with new contributions will enable research in circular economy studies to evolve by evaluating the full potential linked to government interventions and rethinking them by considering the perspective of emerging megatrends.