A group of economists tried to solve a sanitation problem in Senegal.
Our story though starts in my New Jersey home.
When your house has an underground septic tank instead of a sewer connection, every several years the container needs to be emptied. The whole procedure is rather fast and pristine. When I’ve had it done, a large tanker truck pulled up my driveway. It had a long hose that they attached to the nozzle of my buried backyard tank. Quickly, the waste was removed and the truck left.
In Dakar, Senegal, economists wanted to create a waste removal system that resembled what I have in New Jersey..
Households in Dakar tend to wait for a sludge backup before emptying a tank or a pit latrine. An emergency, the overflow means they need someone immediately.
There are two possibilities:
- They can call a tanker truck. Located in a distant parking lot, these “toilet suckers” are tough to contact and expensive. A septic tank or latrine that needs “de-sludging” every six months requires approximately five days’ wages for the service call.
- The second possibility is a man with a shovel and a bucket. He arrives quickly, digs a large hole nearby in the street, buries the waste, charges a smaller amount, and leaves. The price is closer to two days’ wages.
You can see that each alternative has a downside. The problem though is that an estimated 70% of all households were hiring the man with the shovel. It was an unsanitary choice with health hazards that impacted the shovelers and nearby families. In ways other than the expense, the cost in disease and discomfort was high.
On the demand side the researchers provided several ways that households could pay. Some were given the money in a savings account, others got a subsidy. On the supply side, they tried to upset the cooperation that let “desludgers” together set the price. Instead, a call-in system was created through which individual tank truck operators received texted bids for their services. Although price would decline, business could increase from less collusion.
Our Bottom Line: Cartels
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith
A cartel is an association among the providers of a good or service that typically establishes a common price and other forms of cooperation. Contemporary cartels include OPEC’s 15 countries (Organization of Petroleum Exporting Countries) and the Federation of Quebec Maple Syrup Producers. The mechanical “desludgers” in Dakar, Senegal are also a cartel.
During the 19th century, rival U.S. railroads with parallel track found that cooperation was the one way to eliminate ruinous competition. We had for example, the Acheson, Topeka and Santa Fe, the Union Pacific, and the Missouri Pacific Railroad all with the same customers. Rather than compete, the better solution (for them) was a cartel that gave them monopoly power.
But a cartel’s monopoly power can be fragile. Once a firm accepts business at a price lower than the cartel mandates, the agreement disintegrates.
The economists that went to Dakar realized that breaking up the “desludging” cartel would improve the city’s sanitation by creating a more efficient market. Through their 2013-2016 experiment, they lowered prices and increased mechanical “desludging.”
My sources and more: My walk yesterday was more interesting because of this Planet Money podcast on Senegal’s waste solution. I recommend listening and then reading about the research and its potential impact. Then, for some cartel history, you might go to this article from a Stanford historian or this paper. Still, I just enjoyed the facts about the maple syrup cartel from NPR.