Estimating the minimal efficient scale and the effect of intermunicipal cooperation on service provision areas for waste treatment in Japan

We explore the difference in cost structure when municipalities participate in intermunicipal cooperation (IMC) and estimate the minimal efficient scale, which minimizes the per capita service provision cost. The unit of analysis is designated as waste treatment provision area. We specify a cost function based on the Cobb–Douglas form that considers local environment variables, and illustrate the disparity between the current population and minimal efficient scale of the public service provision area. There are several key findings. First, being in an IMC affects the cost function by generating transaction costs, such as monitoring the quality of service provision, but the costs are discounted by population size. Second, the cost function is not linear to population, a downward convex function. Third, approximately 90% of the service provision areas in Japan have the opportunity to take advantage of economies of scale. However, geographical constraints render waste treatment with the framework of IMC more difficult, since such areas are separated by natural elements such as mountains. Nevertheless, the model in this study implies the possibility that municipalities can efficiently reduce public spending by participating in IMC authorities.