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Title: Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use
Authors: Homonoff, Tatiana
Issue Date: 27-Mar-2013
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 575
Abstract: Financial incentives are an important policy tool for encouraging prosocial behavior. However, evidence on the effect of very small financial incentives is mixed. Drawing on an original data set, I investigate the effect of a five-cent shopping bag tax imposed in the Washington Metropolitan Area. Despite the small size of the incentive, I find that the tax decreased the fraction of customers using a disposable bag by a substantial amount. In contrast, a similar policy that offered customers a five-cent bonus for reusable bag use generated virtually no effect on behavior. This pattern is consistent with a model of loss aversion and underscores the importance of the form a financial incentive takes - a tax versus a bonus - when designing policies aimed at shaping consumer behavior.
Appears in Collections:IRS Working Papers

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