The optimal size of territorial units in the outsourcing of waste service: An empirical approach

Abstract

This study provides new insights into the relation between the size of the territorial units for which the provision of waste services is entrusted to external operators and their efficiency. The need for a deeper investigation of this relation arises from the fact that on the one hand, the European Union is pushing its Member States towards the adoption of laws aimed at ensuring competition for the market whenever competition in the market is possible; on the other, both the theoretical and the empirical literature cautions policymakers against the risks associated with contracting out. This problem is addressed here through an efficiency analysis of Italian municipalities in the organization of waste services. The stochastic frontier analysis (SFA) is applied to estimate efficiency scores for the municipalities. Then, a regression analysis is carried out to investigate the relation between the efficiency scores and the size of the municipality. This analysis has been carried out using data on a sample of 6,916 Italian municipalities (87.39% of the entire population) for the year 2019. The method adopted here can also support regulatory authorities in defining the size of the territorial units in which other types of local public service should be outsourced.

Keywords: Regulation; Transaction Cost Theory; competition for the market; economies of scale; municipal solid waste; stochastic frontier analysis (SFA).