Scale, Market Structure, and the Cost of Refuse Collection

Abstract

HOUSEHOLD refuse may be collected by public agencies or private firms operating in areas of spatial monopoly or not and subject to considerable or little government regulation. These characteristics define the form and scale of the market structure for refuse collection. This paper analyzes how the costs of providing waste removal service vary systematically with the identity of the collector, the degree of competition, and the size of the market served. Early studies of refuse collection either did not address the impact of market structure on costs or neglected to define clearly the service being provided. A major conclusion of these studies is that a higher level of service (i.e., more frequent collection, pickup location more distant from the curb) is more costly than a lower level of service (Hirsch, 1965; Clark et al. 1971; Partridge, 1974).' More recent studies have shed some light on the interrelationships of scale, market structure and costs, but the evidence so far has been scattered. Young (1972) presented an argument for the existence of some scale economies and for the greater efficiency of the private than of the public collector of refuse, but no empirical tests of these hypotheses were offered. In the one preceding study that investigated the presence of scale economies in refuse collection, estimates did not hold the service level constant (McFarland et al., 1972). Although some scale economies were found, these results may be misleading if small markets tend to demand a higher (and thus more costly) level of service than do large markets. A recent study of a small group of cities in Connecticut (Kemper a d Quigley, 1976) investigated the impact of market structure on costs, holding service level constant, but was unable, due to limitations of the data, to incorporate a consideration of scale nto the analysis. Although private firms were found to collect refuse at lower costs than public agencies, the findings may be spurious if private firms tend to serve larger markets (perhaps encompassing several cities and towns) than do public agencies, or, alternatively, the findings may be an outgrowth of specific regional or local conditions. The remainder of this paper attempts to remedy some of the omissions of preceding studies. The next section defines three distinct market structures, each of which is frequently observed in the real world, and develops a theoretical model to analyze the interrelated impact of scale and market structure on cost. Following this, equations derived from the theoretical framework are estimated and the results are presented. Equations are estimated using a nation-wide data base holding scale and service level effects constant.2 The final section contains policy guidelines and conclusions arising directly from the empirical work.