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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.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-62.

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Date of creation: 01 Dec 2003
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Handle: RePEc:rff:dpaper:dp-03-62

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Keywords: incentive contracts; asset specificity; principal-agent models; waste collection; recycling;

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  1. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  2. Domberger, Simon & Jensen, Paul, 1997. "Contracting Out by the Public Sector: Theory, Evidence, Prospects," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 67-78, Winter.
  3. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects And The Limits Of Contracting: A Study Of The Indian Software Industry," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 989-1017, August.
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  7. Nelson, Michael A, 1997. "Municipal Government Approaches to Service Delivery: An Analysis from a Transactions Cost Perspective," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 82-96, January.
  8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  9. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
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  13. Ley, Eduardo & Macauley, Molly K. & Salant, Stephen W., 2002. "Spatially and Intertemporally Efficient Waste Management: The Costs of Interstate Trade Restrictions," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 188-218, March.
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Cited by:
  1. Teichmann, Dorothee, 2011. "The role of public-private partnerships in local infrastructure : the case of carbon offset projects," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/8201, Université Paris-Dauphine.

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