In Italy, the waste sector is involved in a radical change of
organizational and market assets. The main aim is to widespread
contestability in order to introduce competition in those sectors.
In fact, actually, waste collection activity is assigned to local
public firms without tendering (direct assignment); firms operate
as legal territorially monopolists.
In this way, Italian policy makers are thinking to different
types of regulation for the market. International experiences
and Italian debate seem to pay more and more attention on two
models through which overpass nowadays local public monopolies
in waste collection and disposal passing from command and control
approach to contractual approach: competitive tendering (competition
for the market) and side by side competition (competition in the
market).
Competitive tendering for local franchised waste collection firms
instead of side by side competition is preferred if there are
economies of density, because firms are more cost-efficient. Competitive
tendering, based on a service contract, could also be an important
instrument for improve organization and obtain higher quality
of the services.
The purpose of the present study is to make a contribution to
this debate through the development and econometric estimation
of a translog total cost function for a sample of Italian waste
collection and disposal firms operating at a provincial level.
These firms operate as local franchised monopolies in the waste
collection and disposal in their legally defined service areas.
Moreover, the retail rates have to be approved by local regulatory
agencies.
The production process of the firms operating in the Italian
waste-collection sector goes through three phases: collection
of garbage, treatment and disposal. Generally, we can distinguish
two types of firms: the first (type I) characterized by those
that collect, treat and organize disposal of garbage; the second
(type II) represented by firms which primarily collect and treat
garbage. For waste disposal, Italian firms can choose between
two procedures: either incineration or landfill. All firms in
our sample of type I use the landfill method.
The results of this study are relevant to several regulatory
issues. First, they provide information about the validity of
the natural monopoly argument in the waste collection sector.
Second, they permit judgment to be made about the legal assignment
of service areas. Third, they contribute to an evaluation of the
desirability of competition in this sector.
