Academic journal article Contemporary Economic Policy

Public versus Private Delivery of Municipal Solid Waste Services: The Case of North Carolina

Academic journal article Contemporary Economic Policy

Public versus Private Delivery of Municipal Solid Waste Services: The Case of North Carolina

Article excerpt

I. INTRODUCTION

For a number of years government organizations have attempted to enhance the effectiveness and efficiency of public service delivery in various ways, including privatization of municipal solid waste collection and disposal. The contracting out of services to the private sector has increased, although many municipalities still deliver services directly.

Several studies have found that cost minimization is a major consideration for service delivery choices in waste and recycling services (Bel and Miralles, 2003; Walls, Macauley, and Anderson, 2005). According to Bel and Miralles (2003), compared with political factors such as political party affiliation and ideology, service cost is the most important factor when municipalities decide whether to contract out municipal solid waste services to private companies or deliver services themselves. It has been generally understood that the contracting out of municipal solid waste services can yield significant cost savings. Contrary to this general understanding, however, recent evidence shows that there is no relationship between contractual arrangements and cost savings (e.g., Bel and Costas, 2006; Callan and Thomas, 2001; Dijk-graaf and Gradus, 2003, 2007).

The purpose of this paper is to examine the effects of different institutional arrangements and service characteristics--including private contractors versus public delivery--on cost savings, efficiency, and productivity of municipal solid waste services. To do so, this paper employs a cost function approach and uses municipal data from North Carolina covering three years (1997, 2001, and 2003).

This paper contributes to the current literature in several ways. As some previous studies have done (e.g., Szymanski, 1996; Szymanski and Wilkins, 1993), this paper uses data from different years (i.e., 1997, 2001, and 2003). This approach allows us to control for intertemporal factors by using yearly dummies. In particular, this approach is useful to control for contractual dynamics and the problem of holdup in the case of private contracting. After successfully winning initial contracts in the first tendering process, private contractors are able to keep winning the contracts and raise the price of solid waste service delivery year after year. In this paper, solid waste costs include collection, recycling, and disposal of commercial and industrial nonhazardous solid waste, as well as residential waste; in most studies, solid waste costs include only collection of residential waste. Although this approach makes it difficult to directly compare empirical findings in this paper with other studies, it allows for a more complete view of overall cost savings, efficiency, and productivity gains. In addition, this paper employs a more complex and detailed model in examining the effects of different institutional arrangements and characteristics on cost savings, efficiency gains, and productivity of delivering municipal solid waste services; it introduces more variables to provide more precise estimations and control for region- and municipality-specific factors.

Section II discusses different institutional arrangements and service characteristics in municipal solid waste service delivery and provides an overview of current literature. In Section III, the translog cost function for empirical estimation is developed and discussed, along with the cost share equation, elasticity of substitution, and productivity. Section IV explains variables and data sources employed for empirical analysis and presents descriptive results. Section V presents empirical findings, and Section VI summarizes important findings and discusses study limitations.

II. PUBLIC VERSUS PRIVATE DELIVERY OF MUNICIPAL SOLID WASTE SERVICES

Generally, public domestic services are delivered using one of the three broad institutional arrangements: (1) (1) public delivery, (2) privatization, and (3) contracting out. …

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