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How Local Governments Structure Contracts with Private Firms: Economic Theory and Evidence on Solid Waste and Recycling Contracts

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  • Walls, Margaret

    (Resources for the Future)

Abstract

Solid waste management services are contracted out to private firms in many U.S. communities. Household waste collection, transport, and disposal are relatively straightforward services to define within the terms of a contract. The addition of recycling, however, significantly complicates matters. How should contracts be structured to provide incentives for recycling? Who should own key facilities, such as recyclable materials processing facilities? Should a separate contract for processing and sale of materials be used, or should these services be provided by government employees or purely private markets? These questions are addressed in this study using the principal-agent framework and the theory of incomplete contracts in economics. I explain stylized facts in the industry, including facts about asset ownership, and look in detail at contracts used in seven communities that have achieved high rates of waste diversion and recycling.

Suggested Citation

  • Walls, Margaret, 2003. "How Local Governments Structure Contracts with Private Firms: Economic Theory and Evidence on Solid Waste and Recycling Contracts," RFF Working Paper Series dp-03-62, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-03-62
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    References listed on IDEAS

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    Cited by:

    1. Massarutto, Antonio, 2007. "Municipal waste management as a local utility: Options for competition in an environmentally-regulated industry," Utilities Policy, Elsevier, vol. 15(1), pages 9-19, March.
    2. Benjamin Dachis, 2010. "Picking up Savings: The Benefits of Competition in Municipal Waste Services," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 308, September.
    3. Cui, Hailong & Sošić, Greys, 2019. "Recycling common materials: Effectiveness, optimal decisions, and coordination mechanisms," European Journal of Operational Research, Elsevier, vol. 274(3), pages 1055-1068.
    4. Benjamin Dachis, 2018. "A Roadmap to Municipal Reform: Improving Life in Canadian Cities," C.D. Howe Institute Policy Studies, C.D. Howe Institute, number 2018.
    5. Teichmann, Dorothee, 2011. "The role of public-private partnerships in local infrastructure : the case of carbon offset projects," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8201 edited by Lorenzi, Jean-Hervé.
    6. Menezes, Flavio & Quiggin, John, 2007. "Sharp and Diffuse Incentives in Contracting," Risk and Sustainable Management Group Working Papers 151183, University of Queensland, School of Economics.

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    More about this item

    Keywords

    incentive contracts; asset specificity; principal-agent models; waste collection; recycling;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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