Effects of Unit-Based Garbage Pricing: A Differences-in-Differences Approach

Abstract

Using a unique 10-year dataset of all 458 Dutch municipalities, we apply a differences-in-differences approach to estimate the effect of unit-based pricing on household waste quantities and recycling. Community-level studies of unit-based pricing typically do not include fixed effects at the local level. We find that failure to do so may substantially inflate the estimated price effect. We also find that unit-based pricing may be endogenous, and use instrumental variables to account for this. Our analysis shows that user fees depend on user fees in neighboring jurisdictions (policy interaction). Our estimate of the garbage reduction per $1 user fee is lower than any previous estimate bar one. The price effect depends on the pricing system: weight-based systems reduce garbage quantities more than volume-based systems. User fees increase recycling, especially of paper, but not nearly as much as they reduce garbage quantities. We find no evidence for waste tourism or illegal dumping.

An EU Recycling Target: What Does the Dutch Evidence Tell Us?

“…In particular, the weight system has large administrative costs and citizens may take their waste to neighboring municipalities without UBP. However, Allers and Hoeben (2010) show that there is no evidence that surrounding municipalities without unit-based pricing systems in fact collect part of the waste produced in Dutch municipalities that do have them. Also according to Allers and Hoeben (2010) illegal dumping is not a serious problem in the Netherlands, as one would expect that many municipalities would have abolished user fees if this were the case and this has not happened (substantially).…”

“…However, Allers and Hoeben (2010) show that there is no evidence that surrounding municipalities without unit-based pricing systems in fact collect part of the waste produced in Dutch municipalities that do have them. Also according to Allers and Hoeben (2010) illegal dumping is not a serious problem in the Netherlands, as one would expect that many municipalities would have abolished user fees if this were the case and this has not happened (substantially). 25 21 In Gradus (2004, 2014) and Allers and Hoeben (2010), the effects of Dutch unit-based pricing on total waste, unsorted waste, (total) recyclable waste and compostable waste are estimated.…”

“…In "Appendix 2" we also investigate this for the model in (1) and draw the same conclusions. Unit-based pricing systems are effective in reducing unsorted waste and stimulating recyclable waste [see also Gradus (2004, 2014) and Allers and Hoeben (2010)]. 21 For the paper, glass, textile and plastic recycling rates, nearly all the UBP coefficients are significant and positive.…”

“…For the period 1998-2010, a similar picture is seen, although there is some evidence that especially the effectiveness of the administrative complex weight-based pricing system deteriorates over time [see Dijkgraaf and Gradus (2014)]. For the Netherlands, empirical evidence suggest that one fifth to a quarter of the UBP-reduction in unsorted waste is due to better recycling of paper, glass and textile, which are collected free of charge [see Allers and Hoeben (2010) and Dijkgraaf and Gradus (2014)]. Compostables are still a quarter of total waste, although the effect differs widely between the country-side and cities, and whether collection of compostables is penalized as well.…”

“…These elasticities are more in line with Huang et al (2011) for US bag/tag-based system if the estimates are limited to UBP-municipalities. Based on data until [2005][2006] and corrected for environmental activism or municipal fixed effects, the effects of UBP-systems on the amount of waste still remain large [see Dijkgraaf and Gradus (2009) and Allers and Hoeben (2010)]. For the period 1998-2010, a similar picture is seen, although there is some evidence that especially the effectiveness of the administrative complex weight-based pricing system deteriorates over time [see Dijkgraaf and Gradus (2014)].…”