[greenyes] Long- Versus Short-Term Price Elasticities

["Jeffrey Morris" <jeff.morris@no.address>]

Thanks to Peter Anderson for his comments on long- versus short-term price
elasticities.  Our study was a cross-sectional study and not a short-term
longitudinal study.  Thus, the estimated price elasticities listed in my
posting are estimates of long-term price elasticities.

To elaborate, the yard debris price elasticities were estimated across
communities, 8 out of 48 of whom provided the service at no additional
charge to garbage collection service subscribers (i.e., free yard debris
recycling from the point of view of the household).  Most charged yard
debris collection subscription fees that ranged from $4.25 to $9.33 per
month.

Monthly fees for weekly collection of one 32-gallon can of garbage, the
service level used by 54% of households in King County cities and
unincorporated areas, ranged between $7.93 and $23.61. Incremental charges
for a second can ranged between $4.00 and $20.00.  The level of the
incremental charge for a second can depends to a large extent on whether the
community uses a cost-of-service garbage rate structure versus a
pay-by-the-volume rate structure.  The cost-of-service communities have low
incremental charges because it doesn't cost much in terms of collection cost
to throw garbage from a second can into the garbage truck once the truck is
already stopped in front of the house.  The extra garbage in a second can
incurs a tipping fee of less than $1.

As a result of using the cost-of-service garbage rate structure, in many of
the cost-of-service communities there is no incentive to pull yard debris
out of the garbage and avoid paying for a second can if the household has to
pay a yard debris collection fee that is greater than the incremental fee
for the second can.  At the same time, there are communities in King County
in which the second can of garbage costs more than the yard debris
subscription fee, and there are those communities where yard debris
collection incurs no additional charge.  So there is plenty of diversity of
fees and fee structures to obtain good estimates of price elasticity.

These fees and fee structures have been in place for ten to fifteen years in
King County communities at about the same amounts relative to each other
across the communities and relative to garbage collection fees in each
community, so that households in each community have had plenty of time to
establish their diversion versus disposal behavior patterns after
introduction of yard debris collections at these sorts of rates.  Comparing
behavior across communities in this situation provides a way to estimate the
long-term elasticities in which Peter is interested. In short, yard debris
diversion is inelastic with respect to changes in yard debris and garbage
collection fees.

At the same time, it is also important to note that the yard debris
collection quantity elasticity with respect to yard debris collection fees
is more than three times higher than the garbage collection quantity price
elasticity with respect to garbage collection fees.  At -.74 the yard debris
own price elasticity means that communities do have substantial discretion
to motivate higher yard debris diversion by reducing yard debris
subscription fees. A 10% decrease in the yard debris subscription fee gets a
7.5% increase in yard debris collection quantities. This is a substantial
impact, even if it is an inelastic effect. When you think about it, many if
not most of our consumer purchases exhibit price inelasticity, especially
for basic goods and services that are available from relatively few
providers at very narrow ranges for price and quality.

Jeffrey Morris, Ph.D.
Economist
Sound Resource Management - Durham
3206A Myra Street
Durham, NC 27707

WA: 360-319-2391
NC: 919-403-1406
jeff.morris@no.address
www.zerowaste.com