Topic Area: Solid Waste Management
Geographic Area: Maine-U.S.
Focal Question: How do variable cost pricing techniques affect disposal volume and costs?
Sources:
(1) Miranda, M.L., Everett, J., Blume, D., and Roy, B., Market-Based Incentives and Residential Municipal Solid Waste, Journal of Policy Analysis and Management, Vol.13, No.4, 1994; pgs. 681-697.
(2) Sequino, S., Criner, G., Suarez, M., Solid Waste Management Options for Maine: The Economics of Pay-By-The-Bag Systems, Maine Policy Review, Vol.4, No.2, 1995; pgs. 49-58.
Reviewer: Robert W. Paterson, Colby College '96
Review:

Rising disposal costs and increased stringency in federal regulation are forcing municipalities to re-evaluate, and in some cases adopt integrated solid waste management (SWM) plans. The implications of these plans extend beyond traditional land-use considerations to include air and water pollution and energy consumption. Traditional SWM plans can be grouped into two broadly defined categories: (1) source reduction or waste minimization (2) waste diversion or recycling/composting programs. This case study focuses on the former, drawing upon a comparative study conducted in Maine.

In the past, the predominant portion of SWM plans nationwide have created little incentive for households and businesses to constrain waste disposal. In many municipalities in Maine, a flat annual disposal fee is embodied in property taxes, where it is essentially hidden from the waste producer. As a result social costs of the "extra waste" are imposed in the form of higher landfill tipping fees and increased labor and collection costs. In essence, consumers and business face a zero marginal cost to waste production, but the towns do not.

Rectifying this condition provides the motivation for progressive unit-based pricing schemes based on volume or weight. In such programs, special bags, stickers or cans are purchased from the town (few are privately operated). The prices are predetermined and account for all costs related to their disposal. In effect, this creates a direct incentive for residents and commercial agents to reduce waste production, and incidentally, encourages greater participation in recycling and composting programs, should they also be in operation. Although traditional economic theory would argue that marginal cost pricing would generate the most efficient outcomes, many communities have adopted average cost or two-tier pricing systems. In average cost programs, waste volume, total costs, and expected number of disposal units for the upcoming year are estimated, from which a unit price is derived. Two-tier pricing involves an initial flat fee for an established minimum level of disposal service, beyond which a unit-based fee applies. In general, these systems will be less efficient than marginal-cost pricing. The degree to which will depend on the precision of average cost estimates and minimum service determination.

In 1994, an empirical study of the affects of unit-based systems in Maine was conducted by the Smith Policy Center. Twenty-nine of the 50 municipalities in the state which have adopted related programs were analyzed relative to a "control" group of communities that maintain traditional flat rates. The researchers employed multivariate regression analysis in cross-section to avoid distortions in waste production created by changes in local economic activity. The analysis controlled for demographic conditions and individual program characteristics were controlled for.

72% of the unit-based programs were organized according to volume, with fees ranging between $.50 and $2.00 per 30-35 gallon container. 21% of the programs were based on weight, with costs from $.02 to $.06 per pound. The remaining 7% used some combination of weight and volume measures or a two-tier system. The following chart provides comparative characteristics of the two groups in 1993:

Characteristic	Unit-Based Municipalities	Control Municipalities
% of municipalities which collect waste curbside	38.0%	64.5%
% of municipalities with composting programs	28.5%	29.0%
Per capita recycling educational expenditures	$0.21	$0.16
% of municipalities with mandated recycling	13.8%	13.0%
% of municipalities which collect recyclables curbside	31.0%	40.0%
% of municipalities using commercial landfill	7.0%	25.8%
Avg. annual residential waste disposal (tons/person)	0.189	0.429
Avg. annual municipal SWM costs per capita	$23.51	$41.20
Avg. annual municipal plus total household SWM costs per capita	$31.17	$41.20

Interpretation of the results indicated that .24 tons less waste per capita was disposed in 1993 in municipalities with unit-based systems. Additionally, $17.69 less per capita was spent on SWM disposal. Taking in account the additional cost imposed on households (in purchasing bags, stickers, etc.), this "savings" was reduced to $10.03.

The researchers were also concerned with the effects associated with attempts by households and consumers to circumvent the costs of unit-based programs. These were: (1) potential increases in illegal roadside dumping (2) illegal dumping in commercial dumpsters (2) "waste shifting" or illegal dumping in neighboring towns that do not employ unit-based disposal pricing. In general, only modest increases were observed. Fewer than 50% of the 29 municipalities reported initial increases in roadside dumping, and indicated that the problem quickly subsided. In many cases officials were able to discern the name of the perpetrator from the garbage and issue subsequent fines. Similar negligible effects were observed with respect to commercial dumpsters. Those establishments surveyed that reported an initial increase suggested that padlocks offered a simple solution. Conclusive evidence of "waste shifting" was found in only one municipality. This may have been due partially to inadequate data, however; it was generally not perceived as a serious problem. Greater than 50% of the municipalities experienced increased incidence of backyard burning of waste in response to implementation of unit-based programs. This may be attributable to the rural character of the communities surveyed, or the difficulty associated with monitoring such activity.

Another concern associated with unit-based programs is the potential regressive economic effects of disposal cost transfer from the town to the household, especially with respect to low-income and large households. Under certain demographic conditions, therefore, a different pricing scheme or vigorous waste diversion program may be more appropriate. In this case, the implementation of unit-based pricing conclusively demonstrated both economic and environmental savings.