Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, April 12, 2005

Garbage Collection:
The Importance of Transaction Costs

One of the basic tenets of the Coase Theorem:
A necessary condition for resources to move to their most highly valued use is that the transaction costs be low. Otherwise the inital allocation of ownership will affect efficiency.

Applying this concept to garbage collection and disposal, Peter Menell examined variable rate pricing for garbage and found:
The economic theory underlying variable rate pricing has proven, after some tinkering at the implementation stage, to be quite workable in practice. In fact, the practical realities of implementing charges have shown that theoretical perfection in terms of getting the prices right is less important in the grand scheme than keeping the transaction costs manageable. [Emphasis added]
As I have written before here and here, we have pay-as-you-throw garbage collection in Clinton, Ontario. The major monitoring costs come at the collection point, making sure households do not mix garbage in with their recyclables or with leaves inside the large leaf bags. The recyclable collectors perform the first task curbside; the latter problem is reduced with the requirement that households use clear plastic leaf bags, not orange or opaque leaf bags.

Also, in Clinton, we are able to purchase stickers or clips from several different variety stores for the private collection of our garbage, thus keeping transaction costs low.

In general, transaction and monitoring costs are low in Clinton, Ontario; that is why pay-as-you-throw works so well here.

Thanks to Out of Control for the link.
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