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Bag Wars

Jan 14, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Environment, Government, Households, Macroeconomic Measurement, Regulation, Thinking Economically • 249 Views    No Comments

Sometimes incentives are unpredictable…especially for B.Y.O.B. (Bring Your Own Bag).

A new 5-cent tax on paper and plastic shopping bags in Montgomery County, Maryland is primarily targeting plastic bag use. Fewer plastic bags will mean cleaner local rivers and an extra $1 million for financing water projects and reusable bags for the poor and elderly. 

Yes? Maybe.

In Montgomery County, one person’s unscientific survey revealed people taking entire supermarket carts of unbagged groceries to their cars and unloading them one by one. Others, forgetting their re-usable bags, bought less or had their taxed bags overflowing. One irate pet owner asked if he could receive free bags for environmentally neutral pet behavior. 

Meanwhile, the plastic bag industry is fighting back. Suing reusable bag maker ChicoBags for “illegal trash talk,” their plastics PR reminds us that the trees, energy and water used for paper bags exceed the environmental impact of plastic. Also, they have funded petition drives against bag ordinances and encouraged environmental cost/benefit studies. 

So, what has happened? San Francisco commissioned a litter audit and discovered, among others things, that sandwich and zipper bags are 4.5% of all bag litter. Including Washington D.C and Portland, Oregon,  the ordinances are proliferating.

Our bottom line: Taxes can affect behaviors and businesses in unpredictable ways. 

Here is a great list of the consequences of the Washington, D.C. bag tax in an econlife post.

The Economic Lesson

Economists suggest cost/benefit analysis for environmental initiatives. Looking at the margin, we can compare marginal (extra) benefit to marginal (extra) cost. Just before marginal cost exceeds marginal benefit, when MC=MB, we should stop because our behavior is no longer productive.

An Economic Question: What are the costs and benefits of plastic bag taxes?  

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