This article first appeared in Wellesley's Calderwood Seminar: Economic Journalism.
Tatiana Homonoff, Economist at NYU, explores the impact of a tax versus a bonus incentive on 5 single-use plastic bags in grocery stores.
December 21, 2020, at 11 am EDT
Written by Jessica Budz
If you were walking down the street and found a nickel on the ground, would it even be worth bending down to get it? Five cents is minute relative to the cost of an American consumer basket (unless your basket contains one piece of gum). Homonoff found that grocery-getters are rather disgruntled when a five-cent tax is placed on each single-use plastic bag. Interestingly, she found that when a five-cent credit was given for using a reusable bag and thus not using a plastic bag, the behavioral response was significantly less. Plastic bag usage nudged from 84 percent down to 82 percent with the bonus incentive whereas the tax resulted in a compelling 42 percentage point drop in disposable bag usage. This makes decent logic. For me, when considering bending down to pick up that nickel on the street, I would consider how dirty the sidewalk was, had it rained recently, does my back hurt today. But if Sally Somebody came up and asked me for a nickel, I would be a little off-put and clench my shiny nickel a little tighter.
Studying how people react to the carrot or the stick can suggest which policies can really reshape our stubborn habits as consumers. To find out if the five-cent tax or bonus would be more impactful, Homonoff employed her research assistants to people-watch at sixteen stores across three counties in the D.C. metropolitan area. There was a beautiful natural experiment brewing for Homonoff; some stores already had a bag policy in place, some stores that never implemented either policy at all, and some stores that implemented a tax or bonus policy during her experiment timeframe. Data was collected in all three counties before and after the policy went into effect for the groups which added a policy in her experiment window.
Homonoff tees-up her work nicely by controlling for the factors that might deem problematic in measuring a behavioral response for a tax and a bonus. She controls for awareness of the policies, income level, race, and sex. Doing so allows her to draw a more realistic conclusion of the effect of the tax and bonus. Homonoff did her due diligence; and her results are quite convincing that a tax, not a bonus, has the potential to change behavior and significantly cut plastic bag usage at grocery stores.
However, a critical eye should always ask the following about any econometric paper: Are these results scalable? Are the results chained to a set of people, a place, or a timeframe? Better stated, can we expect the same results in a culturally different place with a different number of observations?
I find the Achilles’ heel of this paper to be the baseline culture of the DC area where its’ citizens have self-selected to be in a hub of activism and awareness. The second-hand impact of outlier culture defects both the scalability and transferability of her results onto different communities of various sizes. The cultural norms of the greater DC area dictate a high level of motivation to respond to a tax, not because the nickel tax is really going to break the bank, but rather because the educated and politically active aura of DC makes it an incredibly responsive Petri dish to such experiments. The people in DC are locationally more informed and more likely to take action on things like climate change, recycling, and personal carbon footprints. I can imagine a place without this aura of politics and social movements in which instead of buying a set of those hipster IKEA foldable bags, people carry their groceries without bags at all. Regardless of how many individual controls (removing the impact of factors like race, sex, income) she employs, the floor income and education levels amongst these individuals are likely to be higher than most places in the country. These baseline levels are hard to control for without reference points in the data set which could be a better representation of Anywhere, U.S.A.
That being said, what would happen if the entire country got taxed 5 cents on disposable 56 bags? Would the nice results Homonoff found scale-up from a few stores in a niche region ring true from sea to shining sea? Homonoff elaborates on some of the social behavioral aspects that influence why mankind is much more reactive to a tax instead of an incentive, which perhaps suggests that region or political awareness is not the relevant factor, but rather human nature; “value is defined in terms of deviations from a reference point (i.e., gains and losses)… individuals perceive losses more strongly than gains of the same size, a phenomenon referred to as loss aversion” (Homonoff). With that said, it is reasonable to consider that regardless of personal and locational factors, humans are humans, and we are all loss-averse nickel hoarders, regardless of if we wave at the White House on our walk to the Metro or close-up the chicken coop before supper.
What really saves her results is the fact that we can count on human nature to expose itself regardless of where someone calls home. Though the experiment was conducted in an outlier of a region, the results should transfer across the nation due to her excellent addition of the loss aversion concept. Homonoff should be applauded for including nature, — not just the nurture of their surroundings — of humans and their behavioral choices. We as humans, especially humans in a capitalistic and ‘pull up your bootstraps’ culture, are wired to protect even the smallest of liberties — nickels included. Reshaping the habits of American grocery getters to reduce our gross plastic usage can be as simple as a gentle nudge in the nickel direction.
About the co-author: Jessica Cox recently graduated from Wellesley College, where she earned a B.A. in economics and international relations. She is a Daniels Fellow and is currently working for a Wellesley alum ('96) as a Food Safety Consultant, where she currently researches soil degradation, food supply chains, and the impact of regional agriculture on climate change. Jessica and her husband Hayden live in Portland, Maine. She is training to become a spin instructor and hopes to adopt a pet tortoise in the near future!