Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use

Author
Abstract

Financial incentives are an important policy tool for encouraging prosocial behavior.
However, evidence on the effect of very small financial incentives is mixed. Drawing on an original data set, I investigate the effect of a five-cent shopping bag tax imposed in the Washington Metropolitan Area. Despite the small size of the incentive, I find that the tax decreased the fraction of customers using a disposable bag by a substantial amount. In contrast, a similar policy that offered customers a five-cent bonus for reusable bag use generated virtually no effect on behavior. This pattern is consistent with a model
of loss aversion and underscores the importance of the form a financial incentive takes - a tax versus a bonus - when designing policies aimed at shaping consumer behavior.

Year of Publication
2013
Number
575
Date Published
03/2013
Publication Language
eng
Citation Key
8943
URL
Working Papers