In 1979 Phoenix, Ariz., was a pioneer in transferring services performed by government employees to the private sector. But a new study finds the city is not achieving the full benefits of privatization and warns of potential pitfalls for other cities.

In Phoenix, some services, such as transit, are fully provided by contractors. But in other areas, including solid waste management, the city allowed the existing public agency to bid for the contract as well. Researchers say the ability of the city to set the terms of public-private competition has allowed it to raise rivals' costs and exclude potential bidders.

Thus in residential trash collection, for example:

• Contracts rigidly stipulate that private haulers follow the same schedule as the city's service -- twice weekly collection, but not on Wednesdays and Saturdays.

• The number of bidders is limited by requiring that they already have two years' experience as the sole provider of solid waste collection services for 50,000 residences.

• The costs of private firms are raised by requiring they carry employee medical insurance equivalent to the city's and requiring they hire displaced city workers.

• And they are not allowed to use vehicles for both contract service and other purposes without express written permission.

Unsurprisingly, after 18 years of public-private competition, city employees still collect the garbage in two of the three collection districts. However, even with the limitations on competition, the city conservatively estimates it has saved $20 million on trash collection over the period.