So here is another interesting story of consumer behavior and how shifting actions affects operations. Back in January, the District of Columbia imposed a bag tax (Capital Takes Bag Tax In Stride, Sept 20). Want a plastic or paper sack to schlep home your stuff? That will set you back 5 cents a pop. The money goes not to the retailer but to the District and more particularly to a fund to clean up the Anacostia River. So what do you think it happened? Before you answer, realize that we are talking just a nickle. Unless you are prone to indulging in outrageous shopping binges, a single dollar will likely be more than enough to cover your weekly shopping bag needs.
Turns out, that demand for shopping bags is extremely elastic, more so than even the tax proponents would have guessed.
The city doesn’t have a precise way to measure the bag tax’s impact. Prior to the law, residents used an estimated 270 million disposable bags a year, according to the city’s chief financial officer; the city estimated that would decline by 50% in the first year after the tax was imposed. A staff member for the councilman who sponsored the bill, Democrat Tommy Wells, said an informal survey of corporate headquarters for grocery stores and pharmacies with dozens of locations in the city estimated a reduction of 60% or more in the number of bags handed out.
Reduced demand for bags has had a positive side for retailers. A specialty retailer had been giving away fancy bags that cost between 30 and 50 cents but now 75% of its customers don’t take bags because they are unwilling to spend 5 cents. Indeed, the tax has been so effective in discouraging bags use, it will miss its revenue targets. The river clean up fund had been anticipating raising over $3 million dollars this but has collected only $1.1 so far.
Why has this been so effective? One possibility is that people are just irrational:
One skeptic is 73-year-old Mamie Bennett. “It’s really an inconvenience,” she said. On a recent trip to the store, she took one cloth bag from her car’s trunk, but bought more than she planned. To avoid paying a nickel, she asked the cashier to fill her red cloth bag to the top and put other items into her cart. “I have to come back out [to the car] to save five cents,” she said. “It’s a nuisance.”
Perhaps Ms. Bennett is on a very tight budget but otherwise any reasonable analysis says suck it up and spend the nickle if a trip out to the car is that troublesome. Another possibility is that there is a price that goes beyond the out-of-pocket cost. Is taking a bag a social stigma? Some might see it that way. One shopper is quoted saying that “If I go into Whole Foods and don’t have my bags…you really want to dig a hole and crawl into it.”
I suspect that social pressure plays a big part of this. It also helps that this is uniform across retailers. Whole Foods has pushed reusable bags for a while and from — what I have seen — have had a large number of customers buy into this. At the risk of dealing in stereotypes, this amounts to preaching to the choir. Providing this incentive across retailers makes the issue front and center for even the non-Whole-Paycheck crowd. It is also true that it is just not that hard to avoid the tax. That is, demand responds at five cents because the cost of avoiding it is so low.