Saturday, January 23, 2010

D.C. Bag Fee, or What We'll Do to Save 5 Cents

Beginning Jan. 1, grocery stores and several restaurants must charge customers 5 cents for a plastic bag. By informal measures, this has cut bag usage by over half, with some bit of consternation. The Washington Post reports many people awkwardly lugging groceries to their cars, sometimes dropping their items a few feet from the store.
Normally no penny-pincher, she now maps her day's travels to avoid having to shop in the District; she has abandoned her beloved neighborhood grocery store, Harris Teeter on Capitol Hill, in favor of stores near her Virginia office -- even though she pays an extra 2.5 percent food tax there. And twice she has unwisely carried an armload of bagless food out of D.C. restaurants, with calamitous results.
As alluded to in a prior post, many times in life, it makes sense to pay a small fee to avoid a major inconvenience. Perhaps drying our clothes on outside clotheslines would save electricity, but all of us bear the trivial expense of running the dryer because it saves us so much time. You would think that paying a few cents for the convenience of a bag would be a similar no-brainer, but it's causing a lot of stress for locals.

The article quotes Dan Ariely, a behavioral economist and author of "Predictably Irrational":
Because plastic bags have always been free, Ariely said, shoppers have come to see them as a kind of entitlement. Adding even a tiny fee is an affront to what they cherish as the natural order of things. "When it goes from zero to even a very small charge, it can feel very bad," he said. "It creates a very small financial burden but a very big emotional reaction."
Economic theory tells us that a tax should have the same effect regardless of whether it's the customer or the business sending it in (see here for a more extensive discussion (PDF)). However, this situation would have been much different if firms were taxed. I'd imagine they would suck up the 20-cent hit to their profit margins for each customer instead of getting a reputation for inconvenience. That way, the D.C. government would collect a lot more tax money but hardly make a decent in bag consumption. I wonder what the government would prefer: more tax revenue, or the use of fewer bags?

I've often been fascinated by how "free" is a drastically different price than some nominal amount, even if people can easily afford it. I'll likely have more on this topic in the future.

UPDATE 02/08: I've written more on this topic here.


Adam Gurri said...

Chris Anderson's latest book Free looks at that last point. Roberts interviewed him on it a year before the book came out.

One interesting response to the tax that I've seen a lot of is stores giving out canvas bags, something they used to sell, for free. This could go to your point about stores preferring to take the hit rather than losing on reputation.

Frankly I find the big response to this to be weird. How many bags do you have to get before that tax adds up to real money? I mean you'd have to get twenty bags before it even adds up to a dollar.

Greg said...

Very good points. I'll take a look at that book sometime.