Ownership and Production Costs: Choosing between Public Production and Contracting‐Out in the Case of Swedish Refuse Collection

Abstract

Many comparisons of public and private firms use a public/private ownership dummy variable to capture cost differences. If, however, public and private firms use different production technologies, the dummy‐variable approach is misspecified. Data from public and private firms should not be pooled. Secondly, selectivity bias may arise, making it more difficult to identify cost differentials that actually exist. Thirdly, if data should be pooled, the resulting empirical model may be logically inconsistent. This paper compares public and private firms using the refuse collection costs of 170 firms in 115 Swedish municipalities. First, public production costs were 6 per cent lower than private production costs. Secondly, cost differences did not affect producer choice. It is crucial to adjust for selectivity. Data for private and public firms should not be pooled. The dummy‐variable model is misspecified.

Why Do Municipalities Cooperate to Provide Local Public Services? An Empirical Analysis

“…Additionally, such an approach can provide results which while more general, are more robust, and capture the decision to privatise more appropriately. The first 2 They include Ferris (1986); Morgan, Hirlinger and England (1988); Benton and Menzel (1992); Miranda (1994); Greene (1996); Nelson (1997) (McGuire, Ohsfeldt and van Cott, 1987;Dijkgraaf, Gradus and Melenberg, 2003;Walls, Macauley and Anderson, 2005), while others are unable to make this confirmation (Ferris and Graddy, 1988;Ohlsson, 2003). However, when scale economies are combined with the transaction costs deemed likely as a result of privatisation, there is evidence that privatisation is more probable in services with lower transaction costs (Ménard and Saussier, 2000;Walls, Macauley and Anderson, 2005;Bel and Fageda, 2008).…”

Contracting Out Local Government Services: A Comparative Study of Two New Zealand Regional Councils

“…For instance, Domberger and Jensen's (1997) overview of contracting out shows cost savings of up to 20 percent without sacrificing the quality of service provided. In contrast, Ohlsson (2003) found that contracted out refuse collection service in Sweden cost significantly more than those provided by local government. Clearly, assumptions about automatic efficiency through contracting out need to be tempered.…”

Local Governments and Local Waste Management in the Czech Republic: Producers or Providers?

“…Nevertheless, a surprising result has been achieved by the variable called distance to landfi ll / incinerator. Despite the fact that a positive dependency was expected in compliance, for instance, with Callan and Th omas (2001), Ohlsson (2003), Bel and Costas (2006) or Dijkgraaf and Gradus (2006), the results have confi rmed rather a negative de-pendency. Th is result may indicate a more signifi cant role of a fee for use of a landfi ll / incinerator than the distance.…”

“…Callan and Th omas 2001;Dijkgraaf and Gradus 2003;Ohlsson 2003;Bel and Costas 2006;Sø-rensen 2007;Bel and Mur 2009;Dijkgraaf and Gradus 2013;Zafra-Gómez et al 2013;Gradus et al 2014;Soukopová et al 2014;Bel and Warner 2008;Soukopová et al 2016). Regardless of this broad discussion, there is no general agreement whether the local governments should prefer to deliver their services as producers or providers.…”