Search and transaction costs

Search and transaction costs are common in all markets, but may be particularly problematic for markets for recyclable materials due the particular nature of their generation and their heterogeneous nature. This can result in significant costs to identify market counterparts, to agree upon a price, and to conclude a transaction. While such costs may reduce as markets mature, if they are important enough at the outset they may prove to be an insurmountable barrier and the market itself never becomes viable.

Public authorities can play a role in all of these stages. For instance, it can serve as a "midwife" to the market, helping buyers identify sellers, and vice versa. A number of public authorities have taken on this role. For instance, in the Netherlands, public authorities have sought to reduce friction in the market for recoverable residues of energy production. In Korea, a monthly "Market Survey on Recyclable Materials" provides

  1. Similar rules apply in the Austrian Ordinance on Take Back of Batteries and their Limitation of Hazardous Substances.
  2. An interesting private sector initiative in this case is the "International Dismantling Information System" (www.idis2.com) which is a consortium of 24 automotive manufacturers, providing information of value to vehicle dismantlers.

information to 1 000 subscribers on prices and trends in markets for waste paper, synthetic resins, glass bottles, metal cans, and used tyres.

Many governments have sought to play this role through support for the use of online web-sites.74 However, it is not clear that public authorities have a comparative advantage in fulfilling such a role, and many sites designed to fulfil this role have closed. Perhaps more fruitfully, in cases in which such intermediary services do not arise spontaneously in the market efforts should be undertaken to determine why this is the case.

More evidently, public authorities can play a role in encouraging or promulgating the development of grading schemes for scrap and other wastes. For instance, Austria's Compost Ordinance specifies three grades, designed to facilitate the identification of potential uses. These have the effect of reducing the "space" for negotiation, and thus potentially reducing transaction costs. In addition, if dispute resolution mechanisms are put in place, they may also reduce transaction costs by reducing the need to identify potential sources of disagreement at the stage of contract preparation. Many trade associations have recognised this, sometimes with the support of public authorities. Similarly, the dissemination of "standardised" contracts may also help to reduce transaction costs. The Netherlands has recognised the value of this with respect to secondary construction materials, as has the United Kingdom in the area of wastepaper.

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