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No. 331

January 21, 1999

TIME TO TRASH GOVERNMENT INTERVENTION

IN GARBAGE SERVICE

by Peter M. VanDoren

Executive Summary

The necessity of government-managed garbage collection

is grounded in the belief that economies of scale and col-

lection route density result in the formation of service

monopolies.  The policy remedy is for government to induce

competition through the use of franchise bidding in which

private firms compete for the right to be geographic monopo-

lists.

This study finds that economic criteria do not provide

a rationale for government intervention.  Economies of route

density do exist, but they do not provide a rationale for

the current structure of the refuse-collection industry.

Both municipal and franchise contract services are found in

dense settings, where competition is possible, and unregu-

lated open competition can be found in less dense settings,

where natural monopoly conditions should exist.

Even where natural monopolies exist, their pricing

behavior is constrained because the entry and exit costs

faced by potential competitors are not large.  Instead, nat-

ural monopolies in refuse collection are contestable and

therefore charge prices identical to those that result from

bidding for exclusive franchise contracts.

The extent of government involvement currently found in

refuse-collection markets is not justified by economic cri-

teria.  Accordingly, the decision about how often the

garbage should be picked up, what kind of post-consumer

materials (if any) should be collected for recycling, how

nonrecycled waste should be disposed of, and how much should

be paid for those services should be left to individual

households.

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Peter VanDoren is assistant director of environmental stud-

ies at the Cato Institute.