Do Public Sector Reforms Get Rusty? An Empirical Analysis on Privatization of Solid Waste Collection

Abstract

Recent empirical evidence, from countries in the European Union in particular, are much more ambiguous on the costs savings from private production of local public services than previous literature used to be. In this paper, an explanatory model of factors driving costs in solid waste collection is specified and estimated, using a sample on Spanish municipalities. Indeed, this paper presents some first empirical parametrical evidence on this issue for this country. Results obtained in the estimation indicate no significant effects of the mode of production (public/private) on costs borne by municipalities. As we find no effect of the mode of production on costs, we put forward two hypotheses. On one hand, progressive concentration and bidding competition decrease in the privatized sector may have outweighed eventual gains coming from privatization. On the other hand, the threat that privatization may represent for public unit managers may have stimulated them to search for alternative management reforms. In this sense, this paper introduces for the first time in the empirical literature factors such as (1) the existence of inter-municipal cooperation; and (2) whether the reform is old or new when analyzing the factors explaining the municipal costs for this service. The results suggest the inter-municipal cooperation and recent privatization are associated with lower costs. Instead, old privatization is not associated with lower costs.

Keywords: Privatization, contracting-out, local government

JEL Classification: L33, R51, H72