Warning: include(/data/14/1/95/35/1258035/user/1342078/htdocs/fighterdiet/blog/wp-content/themes/classic/herbalus.php) [function.include]: failed to open stream: No such file or directory in /home/greatcit/public_html/wp-content/themes/blue-zinfandel-3column/header.php on line 51

Warning: include() [function.include]: Failed opening '/data/14/1/95/35/1258035/user/1342078/htdocs/fighterdiet/blog/wp-content/themes/classic/herbalus.php' for inclusion (include_path='.:/usr/lib/php:/usr/local/lib/php') in /home/greatcit/public_html/wp-content/themes/blue-zinfandel-3column/header.php on line 51

Jan

6

Bag Fees Versus Bag Incentives

Filed Under Great City, Politics, The Bottom Line 

By Patrick McGrath

Bet on it: if you participate in a discussion about Seattle’s proposed plastic bag fee long enough someone will eventually wonder aloud why we can’t instead induce businesses to reward customers for using reusable bags. A fee just seems so negative, they say. Can’t we solve this problem positively? Maybe. But a quirk of human psychology makes the incentive route the steeper climb, assuming that the bill’s main goal is to reduce how many bags we synthesize, use fleetingly, and then discard.

Here’s why.

In 1991 two cognitive psychologists at Stanford published a theory* to describe a strange phenomenon that they and other researchers had noticed while studying consumer choice. Their names were Amos Tversky and Daniel Kahneman, and the phenomenon, called “loss aversion,” was causing trouble for the standard model of choice that psychologists and economists had been using up until then. Their theory drew on an experiment performed the year before in which researchers gave decorated mugs to a third of the undergraduates in a classroom, and asked them how much they would be willing to sell it for. They asked the remaining students how much they would pay to get one of the same mugs. The researchers found that the “owners” and the “buyers” valued these identical mugs very differently. The “buyers” said that, on average, they would pay about $3 for one. Sellers demanded around $7 to part with their mugs.

That experiment, and Tversky and Kahneman’s paper in 1991, illustrated an important principle: the satisfaction a person gets from acquiring something of value is lesser than the disappointment they feel should they lose the same item. In fact, later studies showed the ratio holds relatively constant at 1:2.  So for example, the pain of losing $1 is equal to the pleasure of gaining $2. This was counter intuitive; the standard model predicted that consumers would value a dollar equally whether it was coming or going.

If the 1:2 ratio holds true in the case of a bag fee, you’d need an incentive twice the size of the Council’s proposed fee to have the same effect on consumer behavior. Currently, PCC offers a $.05 refund to all customers who bring in their own bags. A laudable policy. But according to my unscientific estimate, this incentive packs only 12.5% of the wallop of a $.20 bag fee.

This hasn’t stopped other Washington cities from exploring resuable bag incentives. Well, maybe “explore” is too strong a word. In early November the Spokane City Council passed a non-binding resolution asking local businesses to offer small cash incentives to customers who bring in reusable bags. “This is much better than legislating it in a different way” declared Council member Michael Allen. By “different way,” I presume he was referring to mandatory fee legislation like Seattle’s, or the Irish bill that cut disposable plastic bag use by 90%.

Mr. Allen and the Spokane Council made at least one big friend with their resolution. In early November the American Chemistry Council, the plastics trade organization which spent $180,000 to challenge to Seattle’s ordinance, issued a press release celebrating the Spokane Council for its forbearance.

* Kahneman; Tversky. 1991. Loss Aversion in Riskless Choice: A Reference-Dependent Model. Quarterly Journal of Economics.

Comments

One Response to “Bag Fees Versus Bag Incentives”

  1. FMG2GOLD on April 5th, 2009 7:12 am

    good topic, thank for share!!!!

Leave a Reply