Review of Industrial Organization 18: 105–113, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
A Law of Large Numbers: Bidding and
Compulsory Competitive Tendering for Refuse
Department of Economics, University of Chile, Diagonal Paraguay 257, Torre 26, Casilla 3861,
Correo Central, Santiago, Chile
Imperial College Management School, 53 Prince’s Gate, Exhibition Road, London SW7 2PG, U.K.
Abstract. In this paper we investigate the relationship between costs and number of bidders for U.K.
local authorities’ refuse collection contracts. We ﬁnd that a higher number of bids is associated with
a lower cost of service. This ﬁnding, as well as being an important empirical veriﬁcation of standard
proposition in auction theory, has important policy implications. The U.K. Labour government elec-
ted in 1997 has abolished Compulsory Competitive Tendering (CCT). Our ﬁndings indicate that this
would increase local authorities’ expenditure in refuse collection.
Key words: Econometrics of auctions, refuse collection, tendering.
This paper concerns the relationship between the number of bidders for refuse col-
lection contracts and their selling price for a sample of English local authorities. In
a survey of the empirical auctions literature, Laffont (1997) has pointed out that in
all but a limited number of cases (the major exceptions mentioned were oil drilling
rights in the U.S., and timber in the U.S. and Canada), the application of auction
theory to data has been quite limited. Opportunities for empirical work are restric-
ted by the lack of suitable data on bidding behaviour and the non-homogeneity of
the products tendered. However, domestic refuse collection services are relatively
homogeneous and the imposition of Compulsory Competitive Tendering (CCT)
We are deeply indebted to Desmond Yew for his research assistance. We would like to thank
CDC publishing for providing access to their data. We are also grateful for comments from seminar
participants at the Institute for Fiscal Studies and an anonymous referee.
While this research was undertaken the author was a graduate student at University College
London and the Institute for Fiscal Studies.