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

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 $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. (JEL D12, D91, H23)