|Cato Policy Analysis No. 331||January 21, 1999|
by Peter M. VanDoren
Peter VanDoren is assistant director of environmental studies at the Cato Institute.
The necessity of government-managed garbage collection is grounded in the belief that economies of scale and collection 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 monopolists.
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 unregulated 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, natural 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 criteria. 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.
|Full Text of Policy Analysis No. 331 (PDF, 26 pgs, 116 Kb)|
© 1999 The Cato Institute
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