Subsidizing repair: implications for the formal and informal circular economy

As the linear economy faces increasing pressure due to high material footprints and waste generation, repair emerges as a promising circular strategy to extend product lifespans. Repair can occur formally or informally, such as through self-repair or community repair, but little is currently known about the interaction between formal and informal repair decisions. This paper analyses the effects of a repair subsidy for household appliances on formal and informal repair sectors in Flanders (Belgium). Employing a Computable General Equilibrium (CGE) model and household survey data, we find that a subsidy increases formal repair expenditure and employment while also slightly increasing paid informal repair activities, indicating a complementary relationship. However, repair subsidies may crowd out unpaid informal repair among households primarily motivated by cost-saving. Nonetheless, unpaid informal repair decisions remain mainly influenced by household characteristics, risk preferences, environmental values, and perceived habits. This paper is the first to combine macroeconomic modelling with survey data on formal and informal repair decisions. We recommend policymakers to complement repair subsidies with strategies to formalise undeclared informal repair activities and fostering the development of repair skills, enabling repair as a circular strategy that contributes to a just circular transition.