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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," Discussion Papers dp-03-62, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-03-62
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    More about this item

    Keywords

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

    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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