Review of Industrial Organization 20: 239–252, 2002.
© 2002 Kluwer Academic Publishers. Printed in the Netherlands.
Optimal Size in the Waste Collection Sector
University of Lugano, Department of Economics, Via Bufﬁ 13, 6900 Lugano, Switzerland and
University of Ferrara
University of Lugano, Department of Economics, Via Bufﬁ 13, 6900 Lugano, Switzerland and ETH
Abstract. The purpose of this study is to analyze the cost structure of a sample of Italian waste
collection ﬁrms in order to assess economies of scale and density and, therefore, deﬁne the optimal
size of the ﬁrms. A total and a variable translog cost function were estimated using panel data for a
sample of 30 ﬁrms operating at the provincial level over the period 1991–1995.
The empirical evidence suggests that franchised monopoly, rather than side-by-side competition,
is the most efﬁcient form of production organization in the waste collection industry. Further, the
majority of ﬁrms are not operating at optimal scale.
Key words: Economies of scale, regulation, translog cost function, waste.
In Italy, the waste sector is undergoing a radical change in organizational and
Decree 22/97 deﬁnes a new economic regulation of the waste sector, aimed at
introducing the integrated management of the production process in each regional
service area, which generally coincides with the province. However, the regional
lawmaker has the faculty to deﬁne different conﬁnes of regional service areas, in
order to reach the optimal size of the service area from an economic point of view.
Of course, the correct deﬁnition of the optimal size in this industry is linked to the
dimension of economies of scale and density.
The purpose of this study is to make a contribution to this debate through the
econometric estimation of a translog total and variable cost function for a sample
of Italian waste collection and disposal ﬁrms operating at the provincial level. This
study is useful in order to verify the presence of economies of scale and density and
We are grateful to CISPEL and Laboratorio Servizi Pubblici Locali NOMISMA (Prof. R. Fazi-
oli) for general assistance in constructing the database for the empirical analysis. We would also like
to thank Gina Poncini for proofreading the ﬁnal version of this paper. The views expressed in this
paper are strictly personal. Responsibility for any remaining errors lies solely with the authors.