By Daniel K. Benjamin
Unit pricing reduced
the volume of garbage
presented for collection
by 37 percent.
Largely due to new environmental regulations, the fees paid to deposit trash in U. S. landfills ("tipping fees") tripled between 1987 and 1993. These increases led some communities to experiment with "unit-pricing" programs, which require households to pay for each bag or can of garbage presented for collection. Potentially, unit pricing can raise additional revenue and also reduce costs by encouraging composting and recycling and discouraging package-intensive consumption. But unit pricing might also induce households to burn garbage or engage in "midnight dumping" in their neighbors’ receptacles or along deserted byways.
A few years ago, Charlottesville, Virginia, began charging $0.80 per 32-gallon bag or can of residential garbage collected at the curb, instead of just financing trash collection from property taxes. In recently published research, Don Fullerton and Thomas C. Kinnaman have examined the before-and-after behavior of households in this university town of 40,000 individuals.1 They report that people respond to garbage prices just as they do to all other prices: When an activity becomes more expensive, people engage in less of it. After controlling for other factors, Fullerton and Kinnaman found that unit pricing reduced the volume of garbage presented for collection by 37 percent–a rather remarkable number considering the modest size of the fee.
Where did all the garbage go? Well, some of it didn’t go anywhere, because many residents began practicing the "Seattle Stomp," a term coined when Seattle residents responded to an early unit-pricing program by compacting garbage into fewer bags. Even so, the total weight of Charlottesville’s garbage dropped by 14 percent in response to the introduction of unit pricing.
Expressed on a city-wide basis, unit pricing resulted in about 60,000 pounds less garbage presented for collection each week in Charlottesville–some 1500 tons less per year. Roughly one-third of this total represented an actual reduction in garbage, as residents used less packaging and did more composting. Another one-third was due to additional voluntary recycling by residents. The final one-third, however, appears to be due to a rise in "midnight dumping."
The troubling increase in midnight dumping is analogous to the rise in gasoline thefts that occurred during the 1970s when gas prices jumped sharply. But just as locking gas caps ended most gas thefts, there may be a simple way to prevent most midnight dumping. The authors suggest that property taxes or monthly fees could be used to cover the cost of one bag per household each week, and that unit pricing be applied only to additional bags. Because the average number of containers per person before the program was 0.73 per week, a one-bag allowance would stop all midnight dumping by most one-person households, and stop almost half the dumping by a hypothetical three-person household. Of course, exempting the first bag from unit pricing would also reduce the environmental benefits of unit pricing; even so, the authors estimate that most of these benefits would be retained.
Perhaps surprisingly, Fullerton and Kinnaman conclude that the social benefits of the unit-pricing system–the benefits to the community as a whole–are not great enough to cover the social costs of the new system. Importantly, this reflects the rather high costs of administering the Charlottesville program (almost $0.20 per bag). The city relies on tags that must be affixed to each bag left at curbside, and the cost of printing these tags accounts for about two-thirds of the estimated administrative cost of the city’s program. Traditional garbage disposal, even with expensive new EPA landfill regulations, is still a remarkably cheap activity in the United States. Unit-pricing schemes will have to achieve lower administrative costs if they are to compete with systems financed via property taxes or lump-sum monthly fees.
In the course of their study, Fullerton and Kinnaman surveyed Charlottesville residents on their attitudes toward the unit-pricing system, compared to using property taxes to finance garbage collection. They also asked residents to compare unit pricing to a potential mandatory recycling program as a means of reducing municipal waste. By a three-to-one margin, respondents preferred unit pricing to either the tax-financed system or mandatory recycling.
To be sure, peoples’ actions often belie their words, but it is instructive that in a university community that already actively participates in a voluntary recycling program, unit pricing of garbage collection is viewed so favorably. With a bit of fine tuning, it appears that the application of the price system to waste disposal might be not only environmentally and economically beneficial, but perhaps even politically feasible. As someone who financed part of his college education by driving a garbage truck, I am encouraged.
Reference:
Fullerton, Don, and Thomas C. Kinnaman. 1996. "Household Responses to Pricing Garbage by the Bag," American Economic Review (September): 971-84.
Daniel K. Benjamin is a PERC Senior Associate and Professor of Economics at Clemson University. "Tangents" investigates policy implications of recent academic research.