Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use

Tatiana Homonoff
American Economic Journal: Economic Policy.

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 five-cent tax on disposable bag use and a five-cent bonus for reusable bag use. While the tax decreased disposable bag use by over forty percentage points, the bonus generated virtually no effect on behavior. These results are consistent with a model of loss aversion.

Wagner Faculty