Modest and Incomplete Incentives May Have Very Large Effects: The Impact of Prices on the Demand for Plastic Bags

We quantify, for the first time, the impact of different prices on the quantity used of disposable plastic bags over a one-year post-treatment period, with respect to a one-year pre-treatment period of no regulation. Our outcome variable is the number of single-use plastic bags used by customers of a Uruguayan supermarket chain, before and after it implemented a staggered rollout across the country. Using a difference-in-difference identification strategy, we find that prices of US$ 0.07 and US$ 0.10 per bag decreased the quantity demanded in the range of 70% to 85%, relative to a control group of branches that did not price plastic bags. These estimates are robust in magnitude and statistical significance to different methods of estimation, different specifications of the estimated equation and placebo tests. In particular, they are robust to the estimation of strategic anticipatory behavior by customers. In addition, using a pre-post analysis, we estimate that a US$ 0.14 price may have decreased the demand by an additional 40%. Reassuringly, we do not find evidence consistent with the effect of the prices been driven by a loss of sales. Finally, because not all the stores in the treated cities priced the bags, our work informs policy makers about conditions under which incomplete regulation may achieve good results