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Hold-up Problems in Contracting Out Waste Collection Services

Author

Listed:
  • Hiroaki Ino

    (School of Economics, Kwansei Gakuin University)

  • Norimichi Matsueda

    (School of Economics, Kwansei Gakuin University)

  • Jun'ichi Miki

    (Faculty of Humanities and Social Sciences, Tohoku University of Community Service and Science)

Abstract

Using the newly-available official data on the disposal of househould solid waste, we estimate that there is generally an inverse relationship between the contracting-out rate and the contract price, but this inverse relationship levels out as the degree of contracting-out increases and the contract price even goes up eventually as the contracting rate approaches 100%. Then, we construct a simple bargaining model between municipal governments and private firms and identify how the bargaining equilibrium differs from an outcome where municipal governments can make take-it-or-leave-it offers to private enterprises. Particularly, we focus on the effects of municipalities' concerns of getting held up by private firms in contract-price negotiations. We also conduct a simple simulation analysis and demonstrate that such concerns can indeed lead to a U-shaped relationship between the contracting-out rate and the contract price across different municipalities.

Suggested Citation

  • Hiroaki Ino & Norimichi Matsueda & Jun'ichi Miki, 2019. "Hold-up Problems in Contracting Out Waste Collection Services," Discussion Paper Series 186, School of Economics, Kwansei Gakuin University, revised May 2022.
    • Handle: RePEc:kgu:wpaper:186
    as

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    File URL: http://192.218.163.163/RePEc/pdf/kgdp186.pdf
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    References listed on IDEAS

    as
    1. Norimichi Matsueda & Jun’Ichi Miki, 2017. "Contracting-Out Of Household Waste Collection Services In Japan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 443-455, May.
    2. Eoin Reeves & Michael Barrow, 2000. "The Impact of Contracting Out on the Costs of Refuse Collection Services - The Case of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 31(2), pages 129-150.
    3. Domberger, Simon & Jensen, Paul, 1997. "Contracting Out by the Public Sector: Theory, Evidence, Prospects," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 13(4), pages 67-78, Winter.
    4. Henry Ohlsson, 2003. "Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection," Fiscal Studies, Institute for Fiscal Studies, vol. 24(4), pages 451-476, December.
    5. Norimichi Matsueda & Jun’Ichi Miki, 2020. "Contracting-Out Of Household Waste Collection Services In Japan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 443-455, March.
    6. Stevens, Barbara J, 1978. "Scale, Market Structure, and the Cost of Refuse Collection," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 438-448, August.
    7. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    More about this item

    Keywords

    bargaining; contracting-out; contract price; hold-up; waste collection;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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