Assessing Eco‐Efficiency in Municipal Solid Waste Management Integrating Heterogeneity: A Latent Class Stochastic Frontier Analysis

ABSTRACT The measurement of eco‐efficiency in the municipal solid waste (MSW) sector has garnered significant attention due to the substantial environmental impacts of unsustainable MSW management and the high operational costs associated with public service provision. Given the heterogeneous nature of municipalities providing MSW services, a robust method is necessary to account for technological differences when assessing eco‐efficiency. This allows for consistent comparisons and reliable policy recommendations. In this study, we applied a latent class Stochastic Frontier Analysis (SFA) model that accommodates technological heterogeneity without requiring predefined groups of municipalities. A case study of 297 Chilean municipalities that collect, dispose of, and recycle MSW was conducted. The analysis identified two distinct groups of municipalities based on operational scale and waste management patterns. Group 1, composed of larger municipalities, exhibited lower eco‐efficiency scores, with an average eco‐efficiency score of 0.595. In contrast, Group 2, consisting of smaller municipalities, achieved a higher eco‐efficiency score of 0.862. While population density influenced eco‐efficiency in both groups, its effect was more pronounced in smaller municipalities. These findings underscore the need for targeted policies aimed at improving eco‐efficiency in the MSW sector.