The problem of plastic bags….Niranjan Rajadhyaksha
The principle of loss aversion suggests that taxes work better than incentives to tweak consumer behaviour
The principle of loss aversion suggests that taxes work better than incentives to tweak consumer behaviour
You cannot miss the mounds of plastic detritus that choke drainage systems during the Mumbai monsoon and disfigure our beaches when the waves wash them ashore through the year. Mumbai chucks away around three billion plastic bags every year, according to a story published in Mumbai Mirror this month. The unchecked use of plastic has now become a scourge.
How should this ecological blight be tackled? The government has tried to ban the use of these bags. It has tried to educate citizens about the harmful effects of plastic bags. Despite some early enthusiasm from everyone from vegetable vendors to consumers, neither bullying nor preaching has helped. Both attempts have failed to significantly reduce the use of plastic.
Two recent moves illustrate how incentives could be used to nudge consumers away from overuse of plastic.
In Mumbai, some behavioural economics is being put to use. Large retailers have begun to charge customers for plastic bags from the beginning of this month. The charges are minora rupee or two depending on the size of the bagwhen compared with the bills that most customers run up during their shopping excursions. However, these minor charges could go a long way thanks to what behavioural economists call loss aversion, which means that people go to greater trouble to avoid losses rather than to acquire gains. (To be sure, such a tendency was noted even at the dawn of modern economics, when Adam Smith wrote: Pain…is, in almost all cases, a more pungent sensation than the opposite and correspondent pleasure.)
A charge on plastic bags at the billing counter could prove to be a good use of loss aversion in public policy, with some polite reminding from the staff at the billing counter helping as well. Security men have already been told by mall managements to allow people to carry cloth bags into shops so that they can be used to carry away purchases.
A growing number of cities in other countries have been trying to use similar tactics to battle their plastic problems, hoping that a small behavioural push will result in large social gains. This is like a behavioural economists dream. Here we will see people go to extreme lengths to save very little money, behavioural economist Dan Ariely told The Washington Post, soon after the Washington, DC city government imposed a five-cent tax on plastic bags in January. A few months later, plastic bag use in the city fell from 22 million a month to three million.
Other studies show similar results. Researchers from the London School of Economists conducted consumer surveys between April and December 2008, to assess changes in behaviour before and after British retailers Marks and Spencer (M&S) decided to charge five pence per plastic bag. We found that the charge on plastic bags not only increased the reuse of such bags in M&S, but also at other stores where there was no charge, reported researchers Julian Le Grand and Kate Disney.
In contrast to the Mumbai experiment with charges of plastic bags, a new corporate initiative in New Delhi will try to use another type of incentive. On Tuesday, even as this column was being written, consumer company Hindustan Unilever and Bharti Retail announced a joint initiative in 31 stores to promote plastic recycling in the National Capital Region. According to the release put out by the two companies, consumers who bring in empty plastic bottles and pouches that once held tea, detergent, shampoo, ketchup, toothpaste and the like will be awarded discount coupons at the participating Bharti Retail stores.
The underlying principle here is the use of incentives that will result in gains rather than losses for consumers. Its a bit like the debate about how to promote healthy eating habits. Should a government subsidize healthy food or should it tax unhealthy food? Or consider the same dilemma in energy: Is a tax on petrol better than a subsidy for solar power? The principle of loss aversion suggests that taxes work better than incentives to tweak consumer behaviour.
Some of the claims about the efficacy of the emerging science of behavioural economics are exaggerated. But there is growing evidence that its intelligent use can alter consumer choice. This column has earlier argued (A nudge for a better future, Mint 18 May) that the Indian government should take some of the insights on board to address the fear that the poor may misuse cash transfers to buy alcohol rather than food: The Indian government would do well to invite behavioural economists to understand why the poor behave as they do, and whether it is possible to tweak conditional cash transfer schemes so that people are nudged into using their cash received from the government to buy food or healthcare rather than more immediate attractions.
The two experiments to control the use of plastic bags could prove to be a small start.
Niranjan Rajadhyaksha is executive editor of Mint. Comments are welcome at cafeeconomics@livemint.com