Can Small Incentives Have Large Effects?
Can Small Incentives Have Large Effects? Across the world there have been incentives for reducing disposable plastic bag consumption. Taxes, bans and bonuses are all ways governments have tried to green their cities. Which policy actually works best? And does that apply to Singapore?
A paper by Tatiana A. Homonoff published in the American Economic Journal: Economic Policity (November 2018) examines a simple element of financial incentive design, to determine which incentive - a penalty such as a fee for the behaviour we don't want to see, or a reward for the good behaviour - is more effective. The findings would thus enable an evaluation of the potential effectiveness of policies designed to reduce the use of plastic shopping bags and help to frame future environmental policies.
Standard economic theory suggests that financial incentives aimed at encouraging desirable behaviors or discouraging harmful behaviors will be effective only if the magnitude of the incentive exceeds the costs an individual associates with changing his behavior. [...] The standard model suggests that individuals should respond similarly to the two types of incentives provided that they are of the same monetary amount. In contrast, evidence from the field of behavioral economics suggests that individuals perceive losses more strongly than gains, i.e., they are “loss-averse,” implying that a fee would be more effective than a reward of the same size.
Tatiana investigated the effect of two similar policies aimed at reducing disposable bag use: a USD 0.05 tax on disposable bag use and a USD 0.05 bonus for reusable bag use. She found that while the tax decreased disposable bag use by over 40%, the bonus incentive generated nearly zero effect on behaviour, which she observed are consistent results with a model of loss aversion. Another study imposing a tax on disposable bags in Montgomery County USA, using a difference-in-differences analysis, observed the same results and as such we could conclude that a model of loss aversion is enough to change habits.
But could there be other deciding factors so as to why the tax works better than the bonus?
With data input collected from over 1,6000 shoppers before and after the implementation of the Montgomery County tax, Tatiana found that awareness of the tax/bonus played a part. Generally, the tax awareness was much higher than the bonus awareness. Almost all customers knew of the tax (98%), but just over half were informed of the bonus (52%) which she recognised could cause a substantial portion of the differential response to the two policies. However, even after adjusting for under-awareness of the bonus policy, she estimated a coefficient of loss aversion that is on the high end of those previously found in the literature.
What about consumer attitudes towards disposable bags? Does a tax shift the attitude more than the bonus, enough to notice such a difference in effectiveness?
The survey results suggested that no, "customer attitudes toward disposable bag use and pollution regulation did not change after the tax was implemented" which would suggest that it was not the environmental concern and sentiments towards ecological concerns in changing social norms that motivated the shoppers to bring reusable bags and reduce their consumption of disposables.
Ultimately, the issue with taxes also poses the problem of what would happen if the stores replace the disposable bag with another alternative for their customers. And as for an outright ban? When disposable bags are banned, some stores may turn to provide paper bag alternatives which are not better for the environment, as we discussed before. Some stores may even swap thin-walled (banned) plastic bags for the thicker ones, supposedly because they are reusable.
Earlier on, Montgomery County had implemented a plastic bag ban. But the ban, which went into effect in August 2015, revealed other issues that had not been considered due to the fact that the ban only applied to the thin single-use plastic bags, prompting stores to find alternatives such as paper bags. And while the latter paper bags are less likely to wind up in local waterways than their flimsy light-weight counterparts that had received such negative publicity and are largely associated with plastic pollution, they cost more energy to manufacture than the typical single-use plastic bags.
One independent grocer gave out 9,500 fewer plastic bags a week after the ban, according to the Illinois Retail Merchant Association, but those bags were twice the thickness—negating the benefit of the ban. In all, it was a real-time confirmation of a 2017 study by the University of Sydney: plastic bag bans tend to increase purchases of both plastic trash bags and paper bag use. - Politico.com
Consequently, in November 2016 Montgomery repealed the ban and replaced it with a tax for each disposable bag instead, of just USD 0.07 for both paper and plastic bags alike.
The paper concludes thus that while the tax policy reduced the overall demand for disposable bags by over half and prompted consumers to substitute to reusable alternatives even though the amount taxed was strikingly low, in contrast, the bonus for avoiding a bag had almost no impact on bag usage.
Consumers are less motivated by emotional appeals to save the environment and more by the impact on their pocketbook—even when it’s just a few cents. In Singapore, where freebies and discounts are a battleground between brands and apps, this couldn't ring truer.
How about you? What motivates you and those around you? Do you think this is a universal human trait or that Singapore is very different? What will it take for Singaporeans kick the plastic bag habit?
Join experts, Hailin Pek of Zero Waste Singapore, Roxane Uzureau CEO of barePack and behavioural expert, Loo Deliang (Behaviour Change Practioner, NUS), as they discuss the topic that has sparked national discourse over the years.
* Tatiana Homonoff, an assistant professor of economics and public policy at New York University,