Cost savings in unit-based pricing of household waste: The case of The Netherlands

doi:10.1016/j.reseneeco.2004.01.001

Resource and Energy Economics

Volume 26, Issue 4, December 2004, Pages 353-371

https://doi.org/10.1016/j.reseneeco.2004.01.001 Get rights and content

Abstract

We estimate the effects of four unit-based pricing systems on waste collected in Dutch municipalities. Unit-based pricing is shown to be effective in reducing unsorted and compostable waste and in stimulating recyclable waste. If the estimations are corrected for differences in environmental activism between municipalities the effects are still large but significantly lower. The bag- and weight-based systems perform equally and far better compared with the frequency- and volume-based systems. This is interesting, as administrative costs are significantly lower for the bag-based system. Finally, unit-based pricing has no effect on the amounts of waste collected in surrounding municipalities.

Introduction

More and more Dutch communities have implemented unit-based user fees to finance waste collection. These user fees require households to pay for each kilogram, bag or can presented at the curb for collection. By 2000, more than 20% of all Dutch municipalities had implemented such a system. In this paper, we estimate household reactions to the implementation of unit-based pricing for the collection of residential waste. Our estimates show significant and sizable price effects, which depend on the type of unit-based pricing.

Two streams of literature that estimate household reactions to the implementation of unit-based pricing systems can be distinguished. The first uses cross-sectional analyses of municipalities and the second applies household survey data. Most of the studies show considerable impacts from a pricing system. Table 1 summarizes the existing econometric literature with respect to the effects of unit-based pricing. In general, nearly all studies find a negative and significant own-price effect from unit-based pricing. The results are more mixed for the cross-price effect on collected recyclable waste.

Most studies evaluate bag- or volume-based systems. Only Linderhof et al. (2001) study the effects of the most refined, weight-based system. Table 1 indicates that own-price elasticities overlap for the different unit-based pricing systems. For example, Strathman et al. (1995) found an elasticity of −0.45 for the volume-based system, which is higher than the elasticities of the bag-based systems, while Hong et al. (1993) found a non-significant elasticity. Direct comparison of systems is limited to Van Houtven and Morris (1999). This paper compares the effects of bag- and volume-based systems and finds a significantly higher elasticity for the bag-based system for curbside-collected unsorted waste. The effect on the quantity of waste recycled is found to be insignificant in both cases.

We extend the literature in three directions. Firstly, we explicitly distinguish between the different systems of unit-based pricing (weight-, bag-, frequency- and volume-based pricing). This contributes to the literature because no study presents a direct comparison of the possible unit-based pricing systems. Our results clearly indicate that the bag- and weight-based systems perform far better than the other systems. Secondly, we investigate whether environmental activism is responsible for part of the estimated price effect. Our research shows that municipalities that introduce a unit-based pricing system already produce less waste on average before its introduction. When no correction is made for this effect, price effects estimated on the basis of cross-section data might overestimate the true effects. Thirdly, we test whether surrounding municipalities without unit-based pricing systems in fact collect part of the waste produced in municipalities with unit-based pricing systems. No such effect seems to be present in Dutch municipalities.

Section snippets

Method and data

In previous studies using cross-sections of municipalities, waste per capita is a function of price, the municipality’s mean level of income, the share of homeowners, the age distribution, the average number of people in a household and other demographic variables (see, for example, Fullerton and Kinnaman, 1996). We use the quantity of waste collected (in kilograms per inhabitant) also as the dependent variable. However, we are able to discriminate between different waste streams. In The

The importance of environmental activism

Section 2 shows that unit-based pricing systems have a significant effect on the quantity of collected waste. Part of this effect may, however, result from a higher level of environmental activism. Fig. 1 illustrates this point. Assume that citizens in municipality B (where unit-based pricing is introduced in the second period) are more concerned about the waste problem than citizens in the flat-fee municipality, A. Our method to estimate the effects of unit-based pricing systems compares the

The effect on surrounding municipalities

Section 2 shows that unit-based pricing has a significant effect on the total amount of collected waste. The estimations suggest that one of the reasons for this result is that more waste is sorted. However, no attention was paid in that section to adverse behavioral effects. One of these effects is that unit-based pricing systems may introduce incentives for citizens to take their waste to municipalities without unit-based pricing systems. It seems logical to suppose that surrounding

Administrative costs and illegal dumping

Section 2 shows that the effectiveness of bag-based pricing is comparable to that of weight-based pricing. This is an interesting result because the administrative costs for bag-based pricing are much lower. VROM (1997) evaluates weight-, bag- and frequency-based pricing systems in 12 Dutch municipalities.¹⁶ According to this study, average administrative costs are higher for the weight-based pricing system (6.86 euro per inhabitant)

Conclusions

This paper provides an empirical analysis of the effects of unit-based pricing of household waste for The Netherlands. We find that the weight- and bag-based pricing systems perform far better than the frequency- and volume-based pricing systems. The bag-based system seems to be the best option, as its effects are comparable to those of the weight-based system and yet its administrative costs are far lower.

Compared with the elasticities found in the literature, the estimated Dutch own-price

Acknowledgements

The authors thank an anonymous referee for stimulating comments, the Dutch Waste Management Council (AOO) and Maarten Allers (University of Groningen) for their help in providing some of the data, and Maarten Allers, Loek Bergman (Ministry of Environmental Affairs), Leon Bettendorf (OCFEB) and Peter Kooreman (University of Groningen) for their comments on an earlier version.

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