Tatiana Homonoff was visiting a friend in Washington, D.C., when she noticed that everybody seemed to carry a reusable shopping bag.
When Homonoff remarked on it, her friend explained that the city had recently implemented a 5-cent tax on disposable bag use. Some supermarkets paid shoppers a nickel if they brought their own reusable bag, but nobody really responded — including her friend — until they knew it would cost them something.
“It wasn’t until the tax was passed that she began bringing her own bags,” said Homonoff, a professor at NYU, said in an interview with the AEA. “I thought, there’s a paper here.”
The paper inspired by that conversation was just published in the November issue of the American Economic Journal: Economic Policy. In it, Homonoff examines the extent to which small incentives — in this case, a nickel tax on disposable plastic bags — can change how people behave, and whether penalties for bad behavior are more effective than rewards for good behavior.
The paper highlights how relatively tiny monetary incentives can have significant impacts on consumer behavior, and the importance of how those financial incentives are designed.
Americans use 380 billion plastic bags a year, only a fraction of which get recycled. There have been many attempts to shift consumers toward reusable bags, including stores that rewarded shoppers with a 5-cent credit for every reusable bag they brought to carry out items.
It was unclear whether these “bonuses” were as effective as D.C.’s 5-cent bag tax. Would shoppers be as likely to bring tote bags if they knew they’d be gaining money versus losing it?
In theory, it shouldn’t matter. Both provide a five-cent incentive to bring a reusable bag. But in reality, that’s not how humans behave.
Research by Daniel Kahneman, Amos Tversky, and other behavioral economists have shown that individuals are more sensitive to losses than gains. But much of that work has focused on large rewards — like pay-for-performance bonuses worth thousands of dollars. Homonoff wondered whether the same would be true for these bag policies, especially since the incentives were so small.
“That was an open question,” she said. “Does it look like what we’re seeing for these very large incentives... hold up for just five cents?”
After Homonoff’s trip to Washington, Maryland’s Montgomery County established its own bag tax, opening an opportunity for Homonoff to study the policy’s effects. She spent several weeks hanging out in grocery stores to collect data. Her dataset included more than 16,200 individual customers from around the Washington Metro area, including the Maryland suburbs where the tax was implemented and Virginia where no tax was in place.