The economics of household solid waste management in developing countries : case study of Ho-Chi-Minh City, Vietnam

Abstract

This thesis aims to address several key policy issues relating to the common solid waste management problems in developing countries, using Ho-Chi-Minh City in as Vietnam as a case study. Specifically, this thesis has four objectives: (1) to estimate the households willingness to pay for changes in the salient attributes of solid waste services and investigate the location/distance effects on their preferences; (2) to estimate the household demand function for solid waste services and investigate the reliability of the household contingent behaviour data; (3) to examine the welfare impact of the pay-by-bag scheme, the most practicable form of unit pricing in the city{u2019}s current context; and (4) to investigate how to finance the city's current solid waste management system in a cost-effective manner, and determine the optimal direct waste fee if the fee-based financing scheme is shown to be economically preferable.

A choice experiment focused on the households' preferences for solid waste services was conducted separately across four groups of households of interest, based upon house locations so that the location/distance effects on their preferences could be tested. For the second purpose, due to the dominant practice of flat rate pricing in the past, a contingent behaviour survey was administered to overcome the inadequate variations in the household's actual waste disposal rates in response to changes in the service price. Three split samples were generated based upon the presentation of two different levels of the fixed waste fee to the survey households so that the reliability of their contingent waste disposal rates could be examined. The empirical results of the choice experiment and the contingent behaviour survey were then combined with other related secondary data to handle the third and fourth objectives of this thesis. In particular, an analytical model was developed to assist in judging the relative economic merit between the tax-based and fee-based financing schemes and determining the optimal waste fee.

The choice experiment results indicate that the waste services of concern, such as the construction and operation of the transfer stations and the cleanliness of public places in the city, should be improved as long as the associated incremental costs are economically justified by the corresponding estimates of the households' preferences. In addition, the test for location/distance effects shows that the households' preferences are only significantly different across the urban and suburban locations but are mostly similar between the main street and alleyways locations. This result implies that if differential pricing is to be applied, then the associated original policy should be changed so that only the urban and suburban households would be charged with different levels of waste fee.

Based upon the estimates of household demand for solid waste services, the price elasticity of demand is computed at about -0.1. The household contingent behaviour data are shown to be internally consistent. In a more general sense, this result indicates that the contingent behaviour method can provide reliable data regarding household demand for solid waste services as long as the contingent behaviour question is simplified appropriately. The possible use of contingent behaviour data implies significant advantages in terms of overcoming the common problem of limited variations in the actual unit service price and saving data collection costs for future waste management policy analyses in developing countries.

Implementing the pay-by-bag program is found to cause a loss to the city's social welfare of about VND -1.6 billion per month (USD -93 thousand) in the 2009 value term. The unit pricing approach is therefore not as promising as expected in terms of providing a positive net social welfare gain. Given that the empirical estimates of the price elasticity of demand for solid waste services are significantly low worldwide including in developing countries, while the associated additional costs might be substantially large, the unit pricing approach might well bring about a social welfare loss. Cautious evaluation of the economic worthiness of unit pricing is essential before implementing it in any specific context.

Financing the city's current waste management system appears to be more economically efficient using the fee-based revenue. Since the waste fee elasticity of illegal dumping is inelastic, the optimal waste fee is determined to be at the full-cost recovery level: 52,000 VND/household/month (USD 3.2) whereby the city's economy could save about VND 9.2 billion per month (USD 568,000) relative to using the tax-based revenue. This economically optimal solution is shown to be robust to variations in all key variables included in the analytical model. A preliminary analysis on the households' ability to pay showed that about 20 per cent of the city households could not afford the proposed waste fee and so they should be exempted from paying for solid waste services.

If differential pricing is to be applied and supplying solid waste services is to be cross-subsidised from the higher to the lowest income group of households, then the optimal amounts of waste fee set for the urban and suburban households are determined to be 46,000 and 67,000 VND/household/month (USD 2.9 and 4.1), respectively. These waste fees are shown to be still affordable by the remaining income groups of households.