Adaptive vs. Commitment Governance in Circular Value Chains: Contracting and Pricing Under Uncertainty in Wind Turbine Blade End‐of‐Life Management

ABSTRACT Circular business models rely on interfirm recovery relationships in which effort is difficult to monitor and operating conditions evolve over time. Using wind turbine blade end‐of‐life management, we develop a finite‐horizon dynamic principal–agent model of a circular manufacturer, a recycler and downstream competition with a virgin‐material manufacturer. We compare ex‐ante commitment to a time‐varying incentive sequence with adaptive governance, under which the performance‐based incentive can respond to observed recovery conditions and circular‐material availability before effort is chosen. Because the adaptive policy set contains the committed policy set, adaptive governance yields weakly greater gross circular‐manufacturer value. Numerically, its advantage comes from better incentive targeting, not higher average incentive intensity. Manufacturer value and certified recovery increase despite slightly lower average incentives and effort. In the numerical analysis, the value of adaptation rises with observable operating‐state heterogeneity, but adaptation is attractive in net terms only when these gains exceed monitoring, verification, information‐processing and contractual‐adjustment costs.