Can small incentives have large effects? The impact of taxes versus bonuses on disposable bag use

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Abstract

This paper examines a simple element of financial incentive-design whether the incentive takes the form of a fee for bad behavior or a reward for good behavior-to determine if the framing of the incentive influences the policy's effectiveness. I investigate the effect of two similar policies aimed at reducing disposable bag use: a $ 0.05 tax on disposable bag use and a $ 0.05 bonus for reusable bag use. While the tax decreased disposable bag use by over 40 percentage points, the bonus generated virtually no effect on behavior. These results are consistent with a model of loss aversion.

Original languageEnglish (US)
Pages (from-to)177-210
Number of pages34
JournalAmerican Economic Journal: Economic Policy
Volume10
Issue number4
DOIs
StatePublished - Nov 1 2018

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ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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