If market prices do not reflect the full social costs of a product, then “markets” will overproduce those goods. Consider the case of plastic shopping bags. It is argued that plastic bags take up too much landfill space, and that their production emits dangerous CO2 which will cause the planet to warm. In the retail price of trash bags (nominally zero to consumers, but that is the marginal cost, the average price is in fact much higher), neither of these costs, it is argued, are picked up.
Thus, consumers being rational maximizers, will use plastic shopping bags so long as the benefits to them exceed the costs to them and not consider the costs imposed on the rest of us from that activity. Canonical theory suggests that the way to deal with this “externality” is for some wise 3rd party to make the price of the plastic bags reflect its full cost – for example, a tax on plastic bags (not banning them outright like in San Francisco as I am told).
But implicit in this program of taxing the negative externalities imposed by plastic shopping bag users is that the current outcome is not efficient. In a first best sense that may be true, but not really in a second best sense. I’ve written on this a year or two ago, so I will link to it when I can find it. In other words, just because the plastic bags are costly does not imply that there is some better solution out there just waiting in the wings if only wise policy guided us there.
Consider the popular alternative to plastic bags – those reusable shopping bags that are showing up in stores these days. Now I am open to debate about whether those things are better for the environment or not (I suspect they are not, they feel like the supermarket version of ethanol to me, but maybe I am wrong – for example, skh.pcola’s good comment below implies that these things need to be washed – and doesn’t that use resources and generate CO2 emissions?), but I am not open to debate suggesting that environmental costs are the only ones that matter.
Has anyone stopped to consider the other costs incurred by these things? You do have to buy them, but my guess is that they pay for themselves after several supermarket visits. But does not the storage and trucking them around count at all?
But these direct costs are not even the ones I am most concerned about. After observing the (very excellent) checkout folks at Wegmans for the past several months and after watching environmentally conscious consumers using those bags, I am seriously persuaded that the reusable bags produce externalities no less large than those from plastic bags. What could they possibly be? Most important is that the use of reusable bags adds a considerable amount of time to the checkout process over the use of plastic bags. This should be plain to see. The customer must hand his bags to the cashier, and this process takes time, especially since (unlike the plastics) the bags are not easily set up near the food scanners, and need to be handled one by one. Further, the bags are no larger and not nearly as elastic as the traditional shopping bags. Thus, not only is handling each bag more time consuming, but you must handle more bags per customer than you would if someone chose plastic.
I am acutely aware of this because I would happily pay more for a “Fast Lane” checkout line when I have my two kids with me. It’s not that I mind standing around for 10 minutes with them, but the stores do like to put all that candy and kids movies and magazines by the checkouts …
There was a really cool paper I read recently (can’t seem to remember where, I apologize to the author if he stumbles upon this) demonstrating that the transactions costs which matter most for supermarket checkouts are the number of customers and the fiddling around with customers, and not the number of items per customer. In other words, it is far easier to check out two customers each with 50 items than it would be to check out 5 customers, each with 20 items. The use of reusable bags is like splitting the number of customers. And why does this cost not matter? I would bet a dollar to a donut that added up over the millions of checkouts each year, these amount to far larger losses in welfare than any other cost imposed by plastic bags.
Thankfully, my state has yet to outlaw plastics. But that does not mean that such environmental “do-gooding” has not itself imposed other costs on me, costs which are unpaid for, and which result from the greedy, self-interested behavior of reusable shopping bag consumers who only think about benefits and costs to themselves (and external environmental costs) but not the external costs they impose on others.
If the interventionists of the world were consistent, they would snuff out this externality with an appropriate tax. But I do not suspect I will ever see it.
(*) Please do not read this post as an endorsement for taxing or banning reusable bags.