Title

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

Author(s)

Tatiana A. Homonoff Tatiana Homonoff (Princeton University)

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 found 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.

Creation Date

2013-03

Section URL ID

IRS

Paper Number

575

URL

https://dataspace.princeton.edu/bitstream/88435/dsp014q77fr47j/3/575.pdf

File Function

Jel

D10, D62, H23, Q53

Keyword(s)

incentives, sin taxes, plastic bags, loss aversion

Suppress

false

Series

1