How can the policy on the reduction of plastic bags be optimized?

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How can the policy on the reduction of

plastic bags be optimized?

An analysis of the plastic bag policy in the Netherlands

By: Pien Derkx Studentnumber: 10662324

Supervisor: David Smerdon Word count: 7,431

Date: 29-06-2016

Plastic bags are used excessively and it is starting to show it’s

consequences. Different policies on the reduction of plastic bags have been

introduced in many countries. A tax on plastic bags shows the best results. Two

important success factors can be identified whilst analyzing these policies namely:

environmental awareness under the public and a large enough charge for the bag.

Pigou described a system on optimal taxation in the case of externalities. Because the

use and production of plastic bags have negative externalities, Pigou’s theory is

thoroughly examined in this thesis. A survey was conducted to indicate the costs and

benefits of the externality. Given Pigou’s theory, an optimal tax is calculated for

experienced welfare of the Dutch consumer.

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2 Verklaring eigen werk

Hierbij verklaar ik, Pien Derkx, dat ik deze scriptie zelf geschre-ven heb en dat ik de volledige verantwoordelijkheid op me neem voor de inhoud ervan.

Ik bevestig dat de tekst en het werk dat in deze scriptie gepre-senteerd wordt origineel is en dat ik geen gebruik heb gemaakt van andere bronnen dan die welke in de tekst en in de referen-ties worden genoemd.

De Faculteit Economie en Bedrijfskunde is alleen verantwoorde-lijk voor de begeleiding tot het inleveren van de scriptie, niet voor de inhoud.

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Table of Contents

1. Introduction 4

2. Literature Review

2.1 Other programs on plastic bags 5

2.2 Economic theory 7

3. Methodology

3.1 Method 11

3. 2 Survey 11

3.3 Validity of the Sample 12

4. Results

4.1 Results 14

4.2 Regression 15

5. Discussion 17

5.1 Implications of regression results 17

5.2 Limitation to the survey 18

5.3 Behavioral biases 18 6. Conclusion 19 References 21 Appendices Appendix A 25 Appendix B 26

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4 Introduction

For years consumers in many countries have been given plastic bags at stores for ‘free’. The price was hidden in the product price, which made the bags seem like ‘free goods’, when in fact they are not (Dikgang, Leiman, Visser, 2012). When customers are given plastic bags ‘free of charge’, they have the impulse to use excessive amounts of these bags (Ayalon, Goldrath, Rosenthal, Grossman, 2009). The amount of plastic bags in circulation has therefore increased over the years and has become a bigger problem for several reasons.

Plastic bags are a large part of the total waste in a lot of countries: different percentages of plastic in the total waste can be observed, but at least 5% of national waste consists of plastic bags (Litter monitoring body, 2003) (Ayalon et al., 2009). In Holland alone, the plastic waste in 2014 was 131,000 tonnes (CBS, 2015a). Due to the fact that plastic bags are so light they have the tendency to float away. These bags end up into public spaces, where they clutter the space and view, this is called “white pollution” (Chan, Wong, Leung & 2008). Approximately 5% of all bags end up polluting public spaces (Tinney, 2002). This creates several problems: wild animals for example are known to eat these polluting plastic bags and have a severe risk of dying because of it (Ayalon et al., 2009). These plastic bags also end up in the ocean, where there currently is so much plastic pollution that it has been termed as a ‘plastic soup’. More than 260 different kind of animals have been stuck, tangled up in, or have ingested plastic from the ocean (Derraik 2002). In a research on planktivorous fish an average of 2.1 items of plastic was found per fish (Kershaw, Saido & Sangijn, 2011). Other environmental concerns are at stake as well; 4% of the world’s total gas and oil supply is used to make plastic (Perman et al., 2003). When plastic is released in the environment, it releases chemicals when it breaks down (Dunn, 2012). A solution could be to improve the recycling of plastic bags; however, this is tough because a lot of the bags have been used to hold waste, which causes the plastic to suffer from contamination (Dikgang et al., 2012). In total a trillion non reusable plastic bags are used yearly, which means close to two million plastic bags per minute are given to consumers (Earth policy institute, 2014). It is therefore not a surprise that the reduction of plastic bags has become a priority on political agenda’s all over the world. This year a new target was introduced in the European Union. The goal of this target is to reduce the amount of plastic bags in use (Ministerie van Infrastructuur en Milieu, 2015). The members of the EU are obliged to reduce the amount of bags, but what kind of measures they take to reach this reduction, is up to the different countries. Holland chose an all-round prohibition on free plastic bags. This measure will induce costumers seeing plastic bags as ‘economic goods’, since they are now charged for them. The bags are more likely not to be used excessively since they gained a scarcity value (Hasson, Leiman & Visser, 2007). Dutch shop owners and retailers are no longer allowed to give free bags to costumers but have to charge a price or provide an alternative bag. The price is determined by the stores individually and can therefore differ. The measure Holland took is not a form of taxation, which is the case in a lot of policies in other countries. This way, the government tries to help consumers make -or push towards- the ‘right’ decision. This form of libertarian paternalism is often called nudging. It is important to know if this ‘nudge’ will work and if it does, whether it is the most effective way to reach the goal of reducing plastic bags. Other ways this reduction could have been done

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5 are setting a maximum amount of plastic bags per person, a ban on plastic bags all together or a voluntary fee (Ayalon et al., 2009; Luis & Spinola, 2010; Ministerie van Infrastructuur en

Milieu,2015). While regulation is a more common tool for most government interventions, theory shows that price based tools have the upper hand (Hasson et al., 2007). Introducing a nudge like this can have a big effect both on the economy as well as on the environment. It is important to know in what ways such a nudge can effect a society, how it affects consumers behaviour, the plastic soup (the original goal) and the companies. After the new law on plastic bags some stores in Holland have chosen to get rid of the plastic bags and give out free paper bags to their costumers instead. The use of a paper bag may have more negative externalities, and could be worse for the environment, than the use of a plastic bag (Dikgang et al., 2012). For the scope of this thesis this possibility will be ignored.

This thesis will mostly focus on the side of the consumers and will aim to provide the best level of tax to reduce the amount of plastic bags in circulation. It is important to know for what amount of money the levy on plastic bags is optimal. To calculate this, a survey will be conducted and several theories on Piguouen taxation are thoroughly examined. The survey will point out how the Dutch consumer values the environmental harm due to plastic bags and how much they value the ease of having plastic bags. This information brought together will create an optimal amount of money, for which Dutch policy on plastic bags would create optimal welfare.

2. Literature review

2.1 Other programs on plastic bags

Similar policies to the Dutch policy were already introduced on different places around the world. The most successful implemented policy turns out to be the Irish plastic bag levy (Convery et al., 2007). The amount of plastic bags in Ireland was reduced by 90% and has stayed low (Rayne, 2008). The plastic-bag litter made up 5 percent of national litter composition before the levy was introduced in 2001; this amount fell directly after the introduction to 0.32% in 2002, 0.25% in 2003 and 0.22% in 2004. (Convery et al., 2007). Even by the tax payer, the Irish public, the policy is favoured so much that it would be a politically bad decision to remove the tax. Even on the border with Northern Ireland, where the tax isn’t implemented, there is no competition between the stores with and without the levy, because the public coincides with the taxation (Convery et al., 2007). The tax level in Ireland was not generated through Pigou’s system; they did not determine an ‘optimal’ level of tax. The measure was purely focused on changing consumer behaviour, which makes this policy shift towards the idea of a nudge (Convery et al., 2007). There are several reasons why this policy turned out to be so successful. Though there wasn’t an optimal level for the levy calculated, one of the reasons for the success was that the levy was set high enough (Dikgang et al., 2012). Above all, before the levy was introduced all of the participants, authorities, industry and consumers supported it (Convery et al., 2007). Ireland invested in a strong publicity campaign to create awareness and later to make the public

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6 retailers weren’t profiting from this measure and helped the public link this levy to good

environmental behaviour (Convery et al., 2007). It probably helped a lot that the public was supporting this levy. In a survey conducted before the introduction of the levy 86% of the respondents wanted it to be introduced. These facts make this tax a constant reminder in a consumer’s day to day life of the choices they are facing. This makes it a policy that affects choices of consumers that are already environmentally conscious.

The policy in Denmark showed the importance of the point-of-application. Theirs was one of the few that was directed at producers and retailers. It resulted in producers trying to promote different alternatives to plastic bags, which worked initially (dropped 66 %) but the drop in bags quickly rose again (Dikgang et al., 2012). Portugal tried it with a symbolic charge, of €0.02 cents. This reduced the amount of bags by 37%. Luis & Spinola (2010) researched this case and found that the bags were used more wisely and efficient: consumers started to optimize the bag space. In Botswana a program similar to the one in Ireland was introduced and turned out to be

successful as well. This success was probably due to the high prices charged for the plastic bags (Dikgang & Visser, 2010). In Australia the focus was mainly on public awareness strategies, combined with different voluntary measures. In Italy the price of a plastic bag was set at 6 cents for producers and consumers which made using a plastic bag more expensive than the

alternatives (Ndugire et al., 2005).

One of the least successful programs is South Africa’s. One of the criticisms is that they introduced a first world law in a developing country, which could have played a part in the outcome (Hasson et al., 2007). A fixed price and a levy was set on the bags, however this levy wasn’t fully collected. This lack of transparency and communication created suspicion (Dikgang et al., 2012). Directly after the implementation of the policy the use of bags fell sharply and amount of products in one bag rose significantly (Dikgang et al., 2012). A survey shows that the majority of people did not reuse the plastic bags: the inconvenience of carrying the plastic bags from the households to the shopping centres was mostly given as explanation (Dikgang et al., 2012). The failure of this policy could be caused by the absence of publicity campaigns to create awareness, which was one of the success factors in Ireland. (Dikgang et al., 2012)

Overall from the cases above it can be concluded that making the public environmentally conscious and setting the price of plastic bags high enough has proven to have the strongest effect on consumer behaviour. In Portugal a symbolic charge turned out to be less successful; psychological theories on this kind of voluntary anti-consumer behaviour, meaning that the behaviour of the consumer is more directed towards public welfare and less concerned with continuous buying and consuming, show that it is mainly driven by internal personal

motivations. These internal personal motivations differ a lot in different people. Important for a charge to work optimally is, again, to make people aware about the environment and their choices (Sharp, Høj & Wheeler,2010). With marketing alone however the amount of plastic bags does not decrease. This supports the theory that publicity on its own is not enough for some programs, and public policy is required to make certain changes (Geller, 1989).

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7 2.2 Economic theory

Because there is a price change with a plastic bag policy, from a default price of p=0 to p>0 , price elasticity plays a role. The price of a plastic bag is not high and the price elasticity of demand for cheap goods is usually low. In the short run the price is usually inelastic, but it will become more elastic in the long run- the elasticity rises with time (Nicholson & Snyder, 2011). The empirical findings of Dikgang et al. (2012) and Hasson et al. (2007) show that the demand for plastic bags is indeed inelastic in the short run, and found a significant drop in the amount of plastic bags sold. However looking at the long-run not all policies are able to keep the amount of bags in use low. In South Africa the amount of plastic bags rose steadily after the initial drop. A reason could be that customers get used to paying for their bags, they resist the charge initially, but the price of a plastic bag is small compared to total income so the impact declines with time (Hasson et al., 2007; Dikgang et al., 2012). If the consumers however have more at stake than just money (e.g. they also care about the environment) this reversion should be minimal. The environment that is affected by the plastic is a common good, for it is rivalrous and non-excludable. In this case the way the environment is affected can be seen as an externality. The economist Pigou introduced a theory on government intervention concerning externalities. Externalities take effect when an action of an agent(s) directly affects the utility of another agent(s), which is not paid for through the price system (Comes & Sandler, 1996). It can either be a positive or negative externality and these externalities can lead to market failure. One of the ways to reduce this problem is to set private property rights (Bromley, 1991). However, in the case of the plastic bag, property rights would be practically difficult to implement. Another common way is for the government to intervene and to internalize the externality in the price. For this type of intervention on externalities Pigou created a system where, in competition, the private marginal benefits of the externality should be equal to the private marginal costs of the abatement to create an optimal tax (Oates, 1983). For a social optimum, the social marginal costs of abatement should be equal to the social marginal benefits of abatement. This should constitute an optimal “Pigouen” taxation.

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8 Figure 1 shows a graph of a regular plastic bag market, with a price that is set through the

market mechanism. This price and quantity will create a total welfare that is equal to the grey shaded area. However this grey area is only the appearance of the total welfare because it ignores the consequences of the externality. In figure 2 the same market is drawn, but the cost of the externality of the plastic bags is added. The graph for supply curve is usually derived by equating the production to long-run marginal costs. The adjusted supply curve, that Is added in figure 2, takes into account not only the firm’s marginal costs but also the marginal external costs. Because of these extra costs per bag the supply curve shifts to the left, which creates the adjusted supply curve. The new grey shaded area is the true total welfare, taking into account the costs of the externality.

In figure 3 is a black shaded area added, this is the negative welfare (or benefit/costs to society) created by the externality. If the government didn’t intervene in the market, the plastic bags would have been produced up to the old equilibrium point. The firms in that case are only taking their own marginal costs (marginal private costs), and ignoring the

externalities costs (marginal social costs) that come with the

production of the plastic bags. The market inefficiency would still exist at that point. This creates the black area, which is a negative welfare. The area marked by the arrow, is the reduction in quantity of plastic bags necessary for optimization of the welfare. For that new amount of q, a higher price must be set. This can be done by government intervention with a Pigouen tax. The price becomes higher with the amount of the tax, with the tax level is set at a price equal to the cost of the externality. The space between the supply and the adjusted supply curve, from the point of the new equilibrium to the left, is equal to the Pigouen tax revenue.

This graph also shows that having a Pigouen tax is optimal, because without the tax, the black area should be subtracted from the grey area, which would naturally result in lower total welfare. However if the production of plastic bags would have been forbidden altogether the grey shaded area of welfare would be lost as well. Therefore this Pigouen tax creates the tax for an optimal welfare point. Establishing an optimal tax level can create a problem when this theory is applied to the real world. In the case of the plastic bag it would mean that the costs of the production of one bag extra together with the external costs of that one bag should equal the price charged for the bag. But there is not enough knowledge of the marginal external costs of this in terms of money (Hasson et al., 2007). This thesis will therefore focus on the experienced welfare.

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9 A concern with Pigouen charges like these is that welfare losses might follow. Lower negative externalities should improve welfare, but according to Christiansen and Smith (2008) the environment seems to be a normal good, so when income increases demand for a good environment increases (Antweiler, Copeland & Taylor, 1998). Therefore income, together with how much the public cares about the environment is an important factor of influence.

A Pigouen tax is usually focused on the producer side, but in the case of the plastic bag it is more commonly recovered on the consumer side (Convery, McDonnell, & Ferreira, 2007). This is interesting because according to Rayne (2003) the point-of-application is important. The findings of an early survey show that respondents supported the ‘Polluter Pays Principle’. In the case of the plastic bag however there was some disagreement about who the polluter was. The industry didn’t feel responsible while the respondents mainly believed it was the plastic industry who was accountable (Hasson et al., 2007). The scenario above can be described through game theory.

Table 1 shows an original prisoners dilemma, where two prisoners play the same scenario or ‘game’. They can choose between confessing that the other player did it or staying quiet. In the table the length of their punishment (years in prison) is given for each possible outcome. The numbers in the lower-left corner are the options for prisoner B, these are underlined, the numbers in the upper-right corner are the options for prisoner A, these are in bold. The best strategy for both players would be- if they could negotiate and trust each other- choosing ‘stay quiet’. However because they cannot negotiate and do not know if they can trust one another, the dominant strategy in this game is to confess that the other is guilty. This gives them each 6 years in prison instead of 2, which would be the punishment if they both stayed quiet.

This prisoners dilemma can be used to show the problem with plastic litter; a table for this dilemma is shown in table 2 (Perman et al. ,2003). No matter what player A chooses in the game, B’s best response is to choose to pollute; it works the other way around as well since this is a symmetric game. The Nash equilibrium here is that everybody chooses to pollute and nobody wants to invest time and energy to reuse or recycle the plastic bag. A clean environment gives a higher payoff to both (just like the original prisoners dilemma), but they are hoping to free ride or do not want to be a victim of freeriding, which makes polluting the dominant strategy.

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10 A game similar to the prisoners dilemma can describe the above mentioned scenario according the plastic pollution

responsibility. The game is now played with consumers and producers, as shown in table 3. The payoffs for the staying quiet and confessing options are switched. The producer and the consumers both did not feel completely responsible for the environmental harm, but did want to see it reduced. This game shows a simplified

representation of environmental problems that involve multiple players. It is therefore a clear example of coordination failure. In this game the numbers in the table can be seen as benefit. By choosing the option confess, the players own up to their environmental responsibility. Everybody would be better off if they would do so and the environment would be ‘saved’, but because both of the parties don’t want to take the full blame, nothing comes about without government intervention. This causes both parties to stay quiet and the payoff to be the lowest. If one of the players would accept his responsibility and the other would not, all the costs will be on the party that took responsibility. Their payoff will be zero because all the costs are on them and the other party benefits from the environmental improvements without costs. Both of the players want to coordinate on not polluting but the coordination failure makes the temptation to free-ride too big.

Games like these are a quick way to show what kind of problems arise when the organization of public or common goods are left to private parties. The payoffs are lower than they could have been if everybody accepted responsibility, or decided not to pollute. This means the natural outcome of these games is not Pareto efficient; some agents can be made better off without making others worse off.

To alleviate this problem a Pigouen tax for the externality is a good option. A tax imposed on an externality seems fair, since the consumers can make their own choices. They can decide if they want to keep using plastic bags (but now pay for them) or invest in more durable bags. A tax like this gives the government the opportunity to affect the decisions of consumers which makes this system similar to nudging (Cairncross, 1991). Nudging is often seen as a soft or libertarian form of paternalism, where the policymakers set a choice framework that is designed in such a way that individuals are more likely to make optimal (in the eyes of the maker) choices

(Schnellenbach, 2011). The default option can be changed or can be made less attractive to do the ‘wrong’ thing, for example making cigarettes less attractive by covering packages with terrible images. In the case of the plastic bag money is charged to make it a less attractive option. A nudge usually is based purely on psychological stimulation, which makes the case of the plastic bag not one of pure nudging, because there is money involved.

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11 3. Methodology

3.1 Method

To create a social optimal tax the social marginal costs of abatement should be equal to the social marginal benefits of abatement. The price that comes with the equilibrium quantity,

where MB and MC intersect, is the equilibrium price. If we know the real graphs or numbers of marginal benefit and marginal costs of plastic bags, the optimal tax can be calculated. These costs however are hard to find or predict in the case of plastic because there is limited knowledge about the social, environmental and littering costs (Nolan, 2002). This thesis therefore focuses on the welfare experienced by the consumer. For the welfare loss or gain a consumer experiences, the private marginal benefits of the externality and the private marginal costs of the abatement can be used. For an optimal taxation these two should be equal (Oates, 1983). This optimal tax is going to be calculated with the results obtained by a survey. In this survey the willingness to accept money over a plastic bag is asked. The respondents have to choose between bringing their own bag or getting one for free in the store. This willingness to accept equals the monetary amount people give for the comfort of not having to bring their own bag; these are the private marginal benefits of the externality. The second choice for the respondents is one between buying an environmental friendly bag or a regular plastic bag. The willingness to pay extra for an environmental friendly bag is the monetary amount for which people care about environmental problems relating to plastic. This are set equal to the marginal costs.

A tax must be introduced to create MC= MB. The tax + marginal cost of the externality should be lower or equal to the marginal benefit of having the externality, otherwise the experienced welfare reduces. The optimal tax will be at T*= MB-MC. In other words, the benefit of not having to bring your own bag should be equal to the tax together with the indicated care for the

environment. The optimal tax will be calculated by T* = WTA to bring your own bag- WTP for the environment.

3.2 Survey

The survey is used to obtain data for the empirical analysis. Two main questions are asked in a within-subject design, so all respondents are asked both questions. Firstly is asked for a WTA: “Imagine the supermarket offers you free plastic bags with your purchases, but it offers a store credit if people do choose to bring their own bags. How much would the credit have to be worth for you to keep bringing your own bags?” Bid levels from 0 cent to 1 euro are given. Secondly is asked for a WTP: “ Imagine now that the government passes a law allowing the supermarkets to

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12 force you to buy one of their bags, as long as they offer a recyclable bag option that is 100%

environmentally friendly. A normal plastic bag costs 25 cents. Indicate for what maximum price of the recyclable bag you would buy the environmental friendly bag rather than a normal plastic bag.” Options from 25 cent to 1 euro are given. The respondent could click on one of the options given, each with 5 cents deviation. All respondents got the same questions.

The survey was published using the online survey application, Survey Monkey. All the questions form the survey can be found in the appendix. To recruit participants, links to the survey were spread on different social media platforms and work areas. Because all the respondents have some sort of (in-)direct link to the maker, which makes the sample non-random, the respondents were asked some personal information about age, gender, education and income, so the sample can be reweighted for a more representative result. The average respondent took 2 minutes and 4 seconds to fill out the survey. During recruiting, the respondents were asked two minutes of their time for a survey about the effects on consumer behaviour of the new law on plastic bags. The sample consists of 104 respondents.

3.3 Validity of the sample

Firstly some of the variables from the survey were recoded: for the highest completed education level the answer options ‘no high school diploma’ and ‘MBO1 / VMBO’ are recoded into ‘low’. The options ‘MBO 2,3,4’ and ‘HAVO/ VWO’ are recoded into ‘average’. The options ‘HBO / WO bachelor’ and ‘ HBO-, WO- master/ doctor’ are recoded into ‘high’. This is based on the grouping CBS uses (Verweij, 2008). The income category ’10.000€ yearly and under’ was recoded into ‘low’. The income categories ’10,001-30,000 yearly’ and ’30,001-50,000 yearly’ were recoded into ‘average’. The categories ‘50,001- 75,000’, ’75,001-100,000’ and ‘100,001 and over’ were recoded into ‘high’. ‘Age’ and ‘gender’ remained the same categories as they were asked in the survey. For the variable ‘WTP’, which represents the willingness to pay for an environmental friendly bag, the variable ‘WTPEXTRA’ was created. For ‘WTPEXTRA’ the 25cents, which were the costs of a regular plastic bag, were subtracted from the maximum amount people were willing to pay. In this way this new variable represents monetary amount that people are willing to pay

more for an environmental friendly bag than for a regular plastic bag.

After that the sample was weighted due to the non-random recruiting methods. The sample is weighted to match the population averages found on the website of the CBS (2015b, 2015c, 2015d, 2015e). Population and sample percentages are as follows:

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13 Gender Male Female Sample 40% 60% Population 49% 51% Education

Low Average High

Sample 6% 42% 52%

Population 32.49% 38.85% 28.66%

Income

Low Average High

Sample 38% 30% 32% Population 19.83% 65.73% 14.44% Age 15-20 20-40 40-65 65-80 80+ Sample 9% 53% 28% 9% 2% Population 7.11% 30.11% 42.14% 15.42% 5.22% The weights are created by dividing population percentage by sample percentage. Doing this, different weights are created for different personal characteristics:

If ‘gender’ = ‘male’: 1.225, if ‘gender’ = ‘female’: 0.85. If ‘education‘ = ‘low‘: 5.415 if ‘education‘ = ‘average‘: 0.925 if ‘education‘ = ‘high‘: 0.551. If ‘income‘ = ‘low‘: 0.522 if ‘income‘ = ‘average‘: 2.19 if income =‘high‘: 0.45. If ‘age‘ = ‘15-20‘: 0.79 if ‘age‘ = ‘20-40‘: 0.5681 if ‘age‘ = ‘40-65‘: 1.505 if ‘age‘ = ‘65-80‘: 1.713 if ‘age‘=80+: 2.61.

Because weighting with more variables is a difficult process a computerized program is used to create a fitting weight for each respondent. The target weights were entered into an online program at www.spinnakerresearch.nl. Here the variable ‘weights’ was created for the different groups, that assigned weights to respondents combining all the personal characteristics such as: a highly educated women between the ages of 40 and 65 with a high income creates a weight of 0.230. This was exported into the data set and the whole dataset is weighted by this variable ‘weight’. To test if the variables got the right weights, a frequency test was run on all the variables of the personal characteristics. The frequencies are now exactly the same as the population frequencies.

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14 4. Results

4.1 Results

With the variables weighted for the personal characteristics, the answers for the willingness to accept a plastic bag, ‘WTAANG’, and the answers for the willingness to pay extra for an

environmental friendly bag, ‘WTPEXTRA’, were plotted in a histogram. With this histogram the mean of 0.13 for WTP (figure 4) and the mean of 0.19 cents for WTA (figure 5) were calculated, which are necessary for the calculation of the tax.

A lot of the literature showed that the demand only dropped to 5-10% (Convery, 2007; Hasson et al., 2007; He,2010) and hardly ever lower. Ayalon et al. (2009) concluded that at a high tax level there exists a rigid demand of 6%. This 6% will use plastic bags regardless of price, which is also seen in Ireland where the reduction has been 94% at the highest point. 7 people in this sample (6.7%) choose the highest available option for their willingness to accept, which was 1 euro in the survey. With the assumption that these are the people that want a plastic bag no matter what,

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15 because they chose the highest available option, the willingness to accept was calculated again. However this time these 7 people were excluded from the sample. Figure 6 shows this created a mean of 0.17 cents for the willingness of accept. Willingness to pay should be made equal to the willingness to accept via the tax. T* = WTA amount reducing plastic bags - WTP environment= 0.19-0.13 = 0.06 cents. Corrected for the rigid demand the tax ends up with 0.17-0.13= 0.03 cents.

4.2 Regression

A regression was done to see if any of the personal traits had effect on the amount for willingness to pay or willingness to accept. To be able to do this regression all the categorical variables were recoded into dummy variables. For gender ‘male’ = 0, for age ‘40-65’=0, for education ‘low’=0 and for income ‘average’=0. This gives the following regression formulas:

The regression output can be found on the next page. The regression model for the willingness to accept is significant at α=0.01. The regression model on the willingness to pay is significant at α=0.05. Analyzing the coefficient output for the willingness to accept (WTAANG), only gender and the age 80+ are significant variables. Analyzing the output it can be concluded that females, compared to males, would accept money over a free bag at a 14.9 cents lower bid than males. In other words the value of not having to bring your own bag is 14.9 cents less for females. For people of 80 years and over this value attached to not having to bring your own bag is 19 cents lower than people aged between 40 and 64. For the rest of the personal characteristics no con-clusions can be drawn based on the data and regression model on willingness to accept. In the model on willingness to pay (WTPEXTRA), the dummy gender and high income are significant. This means women and people with a high income are willing to pay more for an environmental friendly bag. Women are willing to pay 10 cents more than men for the environment, while people with high income are willing to pay 11 cents more than people with average income. For the rest of the personal characteristics no conclusions can be drawn based on this data and re-gression model.

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17 5.Discussion

5.1 Implications of regression results

Research shows that rich people are slightly more concerned about the environment compared to other people within the same country (Fairbrother, 2012). This is in line with the regression results on WTPEXTRA, where the high income category is willing to pay 11 cents more than people with average income. This is not really a surprising result, besides the fact that this group cares slightly more about the environment, it also has more money to spend.

The dummy ‘gender’ turns out to be significant in both of the regression models. Research shows that females are more concerned with the environment and perceive the environmental problems more seriously than males (Lee, 2009). This can explain why the results show that women are willing to pay 10 cents more for the environment than men. This can be due to the fact that peer influences and emotional appeals work stronger on females than on males (Lee, 2009). Another study shows that women are more likely to experience "green guilt”, meaning that when they are aware of an environmental problem they are more likely to experience guilt when they don’t act in favour of the environment (Chang, 2012). This shows that publicity cam-paigns on plastic bags are the most effective on females and should probably focus on targeting this group. However since women are already more environmental conscious, there is more to win from changing the behaviour of men. This could perhaps be done by making ‘green’ beha-viour seem more masculine through campaigns or creating manly ‘green’ products (Kimmel, 2015). Another way they could promote bringing your own bags is by putting sad pictures of an-imals trapped in plastic bags on the plastic bags. This is the same strategy that is used in policies that try to influence the behaviour of smokers by putting horrifying pictures on the packaging.

The benefit from the use plastic bags is lower for females. The value of not having to bring your own bag is 14.9 cents lower than for males. This could be due to the face that females are more prepared when they are going to do groceries. In comparison to men, women shop more in ad-vance, for instance man shop for today and women are more likely to shop for a week. Men tend to purchase based on immediate needs, which makes the shopping a less prepared action (Bakshi, 2012). In this way bringing your own bags could be forgotten more often by men. An-other argument is that women could be more used to doing groceries and therefore are used to bringing their own bags. The most of grocery shopping is done by women; in 1992 80 percent of men purchased 25 percent of household groceries (Zin, 1992). However this research is a bit dated, more recently a research of Goodman (2008) shows that 39% of all grocery shoppers are male. Because men care more about the inconvenience of bringing your own bag, they are probably more responsive to reduction of it. Convenience measures should be implemented for the male target audience. This would probably be the best way to influence male consumer behaviour because they are less likely to be influenced by campaigns and more likely to base their decisions on efficiency (Bakshi, 2012).

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18 5.2 Limitations to the Survey

The willingness to pay and willingness to accept should be the same amount in the theoretical perspective, but in practice this is not necessarily the case. It would have been better if the survey made use of a ‘between-subject’ design and asked both willingness to pay and willingness to accept on the same questions, to different respondents. (Blumenschein, Blomquist,

Johannesson, Horn & Freeman, 2008). In that way the possible difference between WTP and WTA would have been bypassed. Survey results also tend to have the problem of “cheap talk”: hypothetical choices do not necessary correspond to economic choices in the real wold (Blumenschein et al., 2008) Theories suggest that people have the tendency to overestimate their willingness to pay (Blumenschein et al., 2008). Therefore it would have been better to not ask these hypothetical questions in a survey but to make an experiment where people are actually confronted with the choices in real life. This could be done with different experiments in supermarkets where people are given the choice to buy the plastic bag and environmental friendly bag at different prices in different supermarkets.

Another problem with the survey is the assumptions we made; the willingness to accept a free plastic bag is set equal to the convenience of not having to bring your own bag. Other concerns might be at stake here too; the respondents for example could already have been

environmentally conscious and that could have influenced their decision. People might like that they do not have to pack their own bags (in certain stores) if they get a free or purchased plastic bag; this could also influence the decision. The costs of the reduction of the externality are set equal to the experienced cost of the externality of the respondents. This is probably not the same though, so it is important to note that the experienced welfare is not the same as the actual total welfare.

5.3 Behavioural biases

In conducting a survey several behavioural biases can influence the behaviour of respondents. There are some method biases this thesis should have controlled for. When filling in the survey, respondents try to understand the question and try to imagine what they would do from their memory. In the first stage, the question and/or the scenario could be misunderstood by the respondent. This can be reduced by running several test rounds of the question form to make sure the questions that are asked from the respondents are clear. After the questions the memory and judgement of the respondents come in to play. The answers can also depend on the respondents mood state, the social desirability of the answer, prime effects and other factors that make the outcome of the survey not completely reliable (Podsakoff, MacKenzie, Lee & Podsakoff, 2003). Controlling for all of the above named influences is hard.

Omission biases happen because people usually prefer the ignorant choice over the active choice, when they lack information (Sunstein, 2000). This could also be the case with plastic bags; as mentioned in the introduction paper bags might even be worse for the environment

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19 than plastic bags and the negative effects plastic bags have on the environment are very diverse and not clear to everyone. Controlling for this bias could have been done by asking about the knowledge of the effect of plastic bags on the environment, this could have excluded this bias. Other biases for which this thesis couldn’t control are the effect of norms and the status quo bias or the crowding out effect. A tax on plastic bags can stimulate new norms because it influences consumers’ perceptions on the problems with plastic bags. When a tax creates a general disapproval of buying plastic bags, this new norm can be internalized and make the consumer aware that continuing to buy plastic bags is a morally incorrect decision to make. This could create a permanent shift in behaviour, even if the tax is removed after a while (Rege, 2004). A questionnaire was conducted that supported this theory which is known in the cognitive social sciences as “triadic interaction of behaviour, personal and environmental” in human functioning. In this questionnaire it became clear that people had changed their behaviour in bringing their own bags after the tax on plastic bags, and 90% claimed they would still bring their own bags if the tax was removed. After the tax the impression, that bringing your own bags is very

inconvenient, changed (Wong, 2012).

This is consistent with the status quo bias; people have the tendency to stick to their habits and thus stick to their status quo alternative (Isaacs,2011). This status quo alternative made a switch in the above scenario from using non-reusable plastic bags to bringing your own bags from home. People feel discomfort when confronted with choices and therefore usually stick to their default; this is also known as the default bias.

However, the intrinsic motives of consumers to engage in the desired action (which is not buying plastic bags) differ in people. After implementing a policy that obliges people to pay for their plastic bag a "crowding out effect" can occur. This means that the intrinsic motivation of people can be overshadowed by the extrinsic new law, or the intrinsic motivation is “crowd out”. The new law can thus undermine the intrinsic motivation of people to do good by themselves (Atiq, 2013).

6. Conclusion

This thesis attempts to create a consumer welfare optimizing tax on plastic bags by doing a survey on WTP and WTA. It turned out that the inconvenience of having to bring your own bags to the store is larger than the experienced harm to the environment by plastic bags. A tax of €0.06 is optimal for the experienced welfare from the consumers point of view. Because the formula for the tax equals T*= MB-MC, a higher benefit from the plastic bags generates a higher tax without the reduction of welfare. However the government could also try to reduce the inconvenience factors of bringing your own bag to help people act in a socially optimal way via another route. One of the inconveniences, mainly at stores without large packing space, is that you have to pack your own bag if you bring your own. This inconvenience can be reduced by stores offering to pack your bag for you.

However if people cared more about the environment than about the convenience of receiving a plastic bag at purchase, a tax would not be necessary because nobody would want to buy a bag anyway. From analysing the programs of other countries a strong publicity campaign turns out to

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20 be a strong feature for a successful program. This helps people to link their ‘easy’ plastic bags to negative welfare effects. If there was a big publicity campaign in the Netherlands to make people aware of all the negative effects of plastic bags, this could have an effect on the outcome of this survey and change the optimal tax. The marginal costs could be higher, because the campaign could create a higher awareness for the environment. The benefits of not having to bring your own bag could become lower, because people associate it more with negative effects on the environment. As a consequence the enjoyment of using the plastic bags can reduce. If the marginal benefit (costs) reduces (increases) by a little more than 6 cents, a tax would no longer be necessary because the good environmental behaviour would be internalized. From an experienced welfare point of view it would be irrational for the consumer to get a free plastic bag at that point.

The Dutch policy on plastic bags would create optimal welfare for consumers at the tax level of €0.06. This level is created through the results of a survey where the participants have not been influenced by an awareness campaign. There is room for improvement for the Dutch

government in this area. The Dutch government however, didn’t try to set an optimal fixed price for the plastic bags; at this point it focuses purely on the effect that consumers no longer

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25

Appendix A: Survey (English version)

1. What is your gender?

• Male • Female 2. Age category :

• 15-20 • 20-44 • 40-65 • 65-80 •80+

3. What is the highest level of education you have completed?

• No high school diploma •VMBO/ MBO1 •MBO 2,3,4 •HAVO/VWO • HBO /WO Bachelor • HBO-, WO- master/ doctor

4. What is your annual income?

• Less than or equal to €10.000 per year. • €10.001 – €30.000 per year. • €30.001 – €50.000 per jaar • €50.001 -€ 75.000 per year. • €75,001 – €100,000 per year. • Greater than €100,000 per year.

5.Imagine the supermarket offers you free plastic bags with your purchases, but it offers a store credit if people do choose to bring their own bags. How much would the credit have to be worth for you to keep bringing your own bags?

0 cent 0,25 cent 0,50 cent 0,75 cent

0,05 cent 0,30 cent 0,55 cent 0,80 cent

1 euro

6. Imagine now that the government passes a law allowing the supermarkets to force you to buy one of their bags, as long as they offer a recyclable bag option that is 100% environmentally friendly. A normal plast bag costs 25 cents. Indicate for what maximum price of the recyclable bag you would buy the environmental friendly bag rather than a normal plastic bag.

0,25 cent 0,50 cent 0,75 cent

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26

Appendix B: Survey (Dutch version)

1. Wat is uw geslacht?

• Man • Vrouw

2. Wat is uw leeftijdscategorie? • 15-20 • 20-44 • 40-65 • 65-80 •80+

3.Wat is uw hoogst behaalde onderwijsniveau?

• Geen middelbare school diploma •VMBO/ MBO1 •MBO 2,3,4 •HAVO/VWO • HBO /WO Bachelor • HBO-, WO- master/ doctor

4. Wat is uw jaarlijkse inkomen?

• Minder dan of gelijk aan €10.000 per jaar. • €10.001 – €30.000 per jaar. • €30.001 – €50.000 per jaar. • €50.001 -€ 75.000 per jaar. • €75,001 – €100,000 per jaar. • Meer dan €100,000 per jaar.

5.Stel u voor dat uw supermarkt gratis tasjes meegeeft als u iets koopt, maar een winkeltegoed aanbiedt aan de klanten die hun eigen tassen meenemen en dus geen gebruik maken van de gratis tasjes. Hoeveel winkeltegoed zou de winkel minimaal moeten aanbieden om ervoor te zorgen dat u uw eigen tassen meeneemt?

0 cent 0,25 cent 0,50 cent 0,75 cent

1 euro

6. Stel u voor dat de overheid een nieuwe wet aanneemt waarbij u wordt verplicht bij elk supermarkt bezoek tassen bij de supermarkt te kopen. De supermarkt wordt verplicht om, naast een gewone plastic tas, ook een 100% milieuvriendelijke tas aan te bieden. Een gewone plastic tas die u bij de supermarkt kan kopen kost 25 cent. Geef aan wat de maximale prijs is van de milieuvriendelijke tas voor welke u de milieuvriendelijke tas verkiest boven de gewone plastic tas.

1 euro

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