Banning supermarket bags?
Posted January 14, 2008on:
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.