Is bigger better? An empirical analysis of waste management in New South Wales

Abstract

Across the world, rising demand for municipal solid waste services has seen an ongoing increase in the costs of providing these services. Moreover, municipal waste services have typically been provided through natural or legal monopolies, where few incentives exist to reduce costs. It is thus vital to examine empirically the cost structure of these services in order to develop effective public policies which can make these services more cost efficient. Accordingly, this paper considers economies of size and economies of output density in the municipal waste collection sector in the New South Wales (NSW) local government system in an effort to identify the optimal size of utilities from the perspective of cost efficiency. Our results show that - as presently constituted - NSW municipal waste services are not efficient in terms of costs, thereby demonstrating that 'bigger is not better.' The optimal size of waste utilities is estimated to fall in the range 12,000-20,000 inhabitants. However, significant economies of output density for unsorted (residual) municipal waste collection and recycling waste collection were found, which means it is advantageous to increase the amount of waste collected, but maintaining constant the number of customers and the intervention area.