The Swedish Competition Authority financed the research and also collected and provided most of the data. The author thanks Sören Blomquist, Pierre Pestieau and two anonymous referees for helpful comments and suggestions. He has also benefited from comments by seminar participants at Uppsala University, Göteborg University, Umeå University and the Norwegian University of Science and Technology, Trondheim. Some of the work on this paper was carried out while the author enjoyed the hospitality of ERMES, Université Panthéon-Assas, Paris.
Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection
Article first published online: 2 FEB 2005
Volume 24, Issue 4, pages 451–476, December 2003
How to Cite
Ohlsson, H. (2003), Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection. Fiscal Studies, 24: 451–476. doi: 10.1111/j.1475-5890.2003.tb00091.x
- Issue published online: 2 FEB 2005
- Article first published online: 2 FEB 2005
- public ownership;
- refuse collection;
- production costs
Many comparisons of public and private firms use a public/private ownership dummy variable to capture cost differences. If, however, public and private firms use different production technologies, the dummy-variable approach is misspecified. Data from public and private firms should not be pooled. Secondly, selectivity bias may arise, making it more difficult to identify cost differentials that actually exist. Thirdly, if data should be pooled, the resulting empirical model may be logically inconsistent. This paper compares public and private firms using the refuse collection costs of 170 firms in 115 Swedish municipalities. First, public production costs were 6 per cent lower than private production costs. Secondly, cost differences did not affect producer choice. It is crucial to adjust for selectivity. Data for private and public firms should not be pooled. The dummy-variable model is misspecified.