Banning supermarket bags?

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Supposedly there is a plastic bag ban in China, and plans to introduce one in Australia. Now the reason these places want to ban plastic bags has to do with externalities associated with plastic bags (Aussie), both as a pollutant and in terms of the aesthetic appeal (China).

I’m not generally a fan of banning things that are currently not banned, especially in a situation where a pricing mechanism is easy to apply. Now I was pleased to see that the Green Party feels the same way, with Jeanette Fitzsimons stating that she was not in favour of an all-out ban and would support compulsory payment for bags.

If too many plastic bags are being consumed, we should make people pay for them. If we then set the price such that the benefit to the individual of a plastic bag equals the cost to society everything is fine.

However, then I realised that this was all too easy. If everyone already agrees with your point of view why say anything! So I’ve decided to try and make a case for why banning bags may be better than placing a price on them.

As with many heterodox type arguments, I’m going to rely on multiple equilibrium to make my case for banning bags. Suppose that firms could supply a plastic or a non-plastic bag, but not both. As a result, the bag they supply depends on what consumers demand.

Then suppose that the type of bag you use is an experience good. In this case, if you have used plastic bags in the past (which we have all been forced to) you have full information regarding how good they are, however you have imperfect information about how good non-plastic bags at the store will be (will they tear when I leave the supermarket? will I look silly using one?).

As a result, there is some probability that the non-plastic bag is better, and some probability that it is worse. Assume for now that the expected quality is just as good as the plastic bag (and that it is just as good). It is possible in this case that you could put a higher price on the non-plastic bag and the person would still buy a plastic bag, if they are risk averse.

In this case, everyone is willing to pay more to use a plastic bag, and as a result the firm chooses to supply them. If society forces everyone to try the non-plastic bag, they will discover it is just as good. In this case, firms are happy to supply the non-plastic bag, and everyone wins (except those who make plastic bags).

The market imperfection I’m using here is imperfect information. Can anyone suggest other ways banning may be preferable to setting the socially optimal price?

Update:  A newspaper article on the issue in the US.

  • http://nzquest.blogspot.com Oliver – Quest For Security

    I guess from an environmental economics standpoint (to which I respect but don’t fully subscribe to), an all out ban would be justified for being less harmful to the environment both from the production of the bags (plastic factories can’t be environmentally friendly, or can they?) and additionally where they end up after usage.

    Additionally, where are plastic bags made? One could even bring in an economic nationalist/mercentalist perspective if they are being imported, or made from imported substances, when in fact they could be substituted for a New Zealand produced alternative.

  • http://tvhe.wordpress.com/ rauparaha

    Transaction costs: calculating and levying the appropriate tax is difficult and costly. Simply banning them is far cheaper and achieves the same end of environmental protection. It also makes the policy easier to explain: they’re a demerit good so we don’t want people using them, therefore they’re banned.

  • http://tvhe.wordpress.com Matt Nolan

    Good suggestions, let me try another one.

    Say that supermarkets offer both plastic and non-plastic bags, and that the consumers choice of bag depends on what other people are using. If other people are using plastic bags you don’t want to be different, and so you use plastic bags. In this case we have a thing called ‘strategic complementarity’ between bag users. Here there are two equilibrium – all use plastic bags, and all use non-plastic bags.

    Now if we reach a state where everyone is using plastic bags, as long as the price of the bag is lower than the benefit that people get from having the same bags as other people, we will stay in the plastic bag only state.

    If we ban plastic bags, we immediately shift everyone to the ‘all use non-plastic bags’ equilibrium, problem solved.

    Note: The first model and this one are better than the priced equilibrium as the consumers of bags are better off than they would be in the priced equilibrium while everyone else is indifferent. Just thought I should make that clearer :)

  • http://tvhe.wordpress.com/ rauparaha

    Ha, they’re only better off by assumption :P If you didn’t assume that they preferred non-plastic bags then there’s no reason for them to be better off. They’re in a different eqm now that was impossible to reach without regulation; that doesn’t mean it’s necessarily better.

  • http://tvhe.wordpress.com Matt Nolan

    “If you didn’t assume that they preferred non-plastic bags then there’s no reason for them to be better off”

    That’s not true. In the pricing equilibrium they have to pay a positive price for the plastic bag, in the banning equilibrium they do not have to pay anything for the non-plastic bags. If they ex-post value the bags evenly then they are better off in the banning equilibrium ;)

  • http://tvhe.wordpress.com/ rauparaha

    Oooops, I misread your comment when I skimmed it, sorry. I thought you said they’d be better off after banning them than before. So, yes, if they don’t prefer plastic bags then they’re no worse off after banning them :)

  • dant03

    Hi Matt and others,

    Nice to see you thinking about alternatives, but in this case I don’t think that its very realistic to imagine that there are many information barriers to support your first scenario of risk aversion. Any alternative to plastic bags is likely to be visible, cost little to sample, and probably be to some extent publicised when introduced (if a tax on plastic bags is introduced, supermarkets and the govt will be quick to point out the alternative I’ll wager). Plus, people already have an intuitive idea of what a good and a bad bad feels like.

    As for your second idea, its probably more realistic. That said, I don’t think that it applies. I may be suffering from insularisation from mainly only visiting inner city new world metro’s, where a lot of people find it ‘trendy’ to use reusable bags, but suggest that there are likely to be three types of consumer: 1 – biggest group, do whatever is cheapest and easiest; 2 – insular views, trendy in their minds to use reusable bags so will do that; 3 – your sheep, I mean people that strategic complementarity applies to.

    With the tax, some portion of group one will switch away from plastic bags (I’m going to be realistic and assume that the tax will affect different people differently, as there will be a range of cost-benefits for using plastic bags v resuable across differnt people that this will effect). Finally, your group of sheep will tip one way or another depending on how many of the people from group one switch.

    This way we don’t quite get the all or nothing outcome. Another more realistic scenario would be giving people individual utility functions, and only some weighting on sheepishness. I think that this applies more or less to most things. Some people are complete sheep – weighting 100%. Some peope think for themselves – 0% sheepishness. They put the balance of their weighting on their specific preferences etc. I don’t know exactly how sheepish most people are with shopping bags, probably highish realatively speaking because the issue is one that people don’t often think about, but I doubt it would anywhere close to 100%.