Which ones work
In a recent study, I examined the relative effectiveness of two policies in the Washington, DC metropolitan area: a five-cent tax on paper and plastic disposable bags use and a five-cent bonus for reusable bag use.
If disposable and reusable bags are substitutes, the two policies are financially equivalent – each policy provides customers a five-cent incentive for using a reusable bag instead of a disposable bag. Standard economic theory tells us that individuals should have a similar response to the two types of incentives given that they are of the same monetary amount.
However, evidence from behavioral economics suggests that individuals are “loss averse,” meaning that they perceive losses more strongly than gains. If this is the case, then the tax may be more effective at changing behavior than a bonus.
My results showed just that. While 82% of customers used disposable bags prior to the tax, this fraction declined to 40% after the tax was implemented.
In contrast to the overwhelming impact of the tax, a five-cent bonus for reusable bag use had almost no impact on disposable bag use, evidence consistent with a model of loss aversion.
A related study found similar results after evaluating the impact of a policy in the San Francisco Bay Area.
The metro area that year imposed a ban on plastic bags in addition to a varying charge on paper bags. The study found that while the policy eliminated the use of plastic bags, it also generated an increase in the use of paper bags. This suggests that banning one type of disposable bag while leaving another type largely unregulated may lead to unintended consequences.
However, the effect of the policy on total disposable bag use (paper and plastic bags combined) was still quite effective – the proportion of customers using any type of disposable bag decreased by roughly 50%.