The Indian Economy Blog

December 1, 2005

Why We Argue For The Market

Filed under: Environment,Regulatory reforms — Ravikiran Rao @ 11:17 pm

So plastic bags are clogging up our drains. How do we solve the problem?

One way is to ban plastic bags. That is the typical solution we come up with for many problems. The thinking that informs such decision making is Bush-style “for us or against us”. The only reason why anyone would be against banning plastic bags is that they hate the environment, or are just evil capitalists concerned about their profits. Unfortunately, such thinking ignores the trade-offs inherent in any decision-making. For example, I usually avoid asking for plastic bags when I shop for little stuff close to my home. If I have to buy a bunch of bananas, I carry them in my hand. But if I have to carry stuff from a long way away, I get a bag. There is no point categorizing my decisions by asking: “Are you in favour of plastic bags or the environment?” Of course I care about the environment. I also care about my convenience and I trade off the two constantly.

Another way is to impose a tax on purchase of plastic bags. This is a good idea, and I might even support it if the money collected from the tax is used in collecting the garbage and disposing of them properly. This is a better idea because it imposes the costs where it belongs. It also puts the decision into my hands. Do I choose convenience or pay the price? It is upto me.

But this too is not my ideal solution.

It is not the use of plastic bags that is causing the problem. It is their disposal. So instead of charging at the point of sale, why not impose a charge at the point of disposal? I realise that this may not be practicable in India. It would be difficult to enforce in India which is why I’d support option 2. But if we could enforce it, this would be the best way to do it. Why?

This is why (via India Uncut). They have found a way to use waste plastic bags to pave roads. The linked article refers to Niger, but I remember reading somewhere that Bangalore is also doing the same. This is not a complete solution to the plastic problem, but it suggests what could be done if incentives were aligned properly. If residents are charged to dispose of their plastic bags, it gives an incentive to someone to come up with creative ways to dispose of these bags. Given that it would cost money to dispose of a bag, they would gratefully hand it over to someone who offers to take it on for free. Or perhaps the innovator may actually find it feasible to offer cash for those bags. It would depend on the economics of the thing. The important thing is that if you tax the sale of the bags instead of the disposal, this incentive would not arise.

I am using this example to illustrate a principle that the government should use while dealing with environmental issues – the polluter pays. More precisely, the polluter should pay in proportion to the pollution and at the point of pollution.

For another example of this, take the Delhi Government rule that only CNG buses are allowed. Is that the best way to control pollution? No, because if someone comes up with an engine that pollutes less than CNG, he will have to take a lot of trouble trying to get it introduced in the market. He will have to lobby the government to change the rules (and probably face up to counter-lobbying by makers of CNG engines.) Far better to impose pollution norms, and let the compliance with those norms be the headache of vehicle manufacturers. It is better to control at the point of pollution than at some upstream point.

Some months back, in a discussion with Gaurav Sabnis, he had lamented that environmental policy is one place where we capitalists enter a grey area. In one sense that is true. Even the solutions that I’ve outlined aren’t “elegant” ones. All of them give the government much more policy making power than we would like. But then, no one has managed to come up with a good solution, and I think that the solutions that work with the market are still better than the ones that use the heavy hand of regulation.


  1. Market based incentives will work only when the effects of pollution are local and immediate, the costs easy to calculate and property rights well defined. Unfortunately most of the serious environmental problems are not like that (for example global warming or the erosion of tropical rain forest cover).

    Also, an unintended side-effect of “polluter pays policy” will be the creation of pollution havens–poor states and countries who in their desperate bid to attract industries and kickstart development lower their environment standards and thus start a race to the bottom. This is in fact what is already happening, remember Ken Saro-Wiwa?

    Comment by Alok — December 2, 2005 @ 1:20 am

  2. Why pollute at first place and then charge for the pollution?. Prevention is always better.

    ["Is that the best way to control pollution? No, because if someone comes up with an engine that pollutes less than CNG, he will have to take a lot of trouble trying to get it introduced in the market."] — It is definitely better than the already polluting vehicles (even if they are ready to pay for it).

    People with money may not really care for paying for the pollution they do. It is also important to see who gets affected. While the polluter may pollute, pay the money and leave the scene in a closed car, the person on the road is the most affected in these cases. The best thing that can be done in these cases is having better stringent policies.

    Comment by NaiKutti — December 2, 2005 @ 9:01 am

  3. what on earth, I pray, are “evil capitalists” ???

    Comment by Bonatellis — December 2, 2005 @ 9:15 am

  4. I’d like to know what the author’s thoughts are on Cigarette and Tabacco sales.

    Comment by Santosh — December 2, 2005 @ 9:38 am

  5. Sorry, I misspelt Tobacco.

    Comment by Santosh — December 2, 2005 @ 9:39 am

  6. You missed the point with CNG buses. The main aim was to get rid of the smoke spouting buses ALREADY on the road. Since they couldn’t make the operators throw their buses away, they forced them to switch over to CNG. The same happened for auto rickshaws and taxis.

    Taxation wouldn’t have worked in this case since an inherently corrupt RTO would mess up everything and created a black market like that of Kerosene.

    If the manufacturers were told to enforce pollution norms (they are already being told to do that with all the emission norms in place for quite a while) it would take a decade or more to see any effect from a standard that comes into force today.

    As for plastic bags, a disposal tax needs to be imposed on bags AT THE POINT OF MANUFACTURE making them atleast 10 times more expensive than they presently are. However, the danger is that retailers of unpackaged foods might pass off the cost of the bag as part of the total cost of their sales. So the consumer doesn’t directly feel the pinch of a plastic bag. This needs to be guarded against. The objective after all, is to discourage people from using the bags rather than earning revenue.

    Comment by Alok Patel — December 2, 2005 @ 10:43 am

  7. Why pollute at first place and then charge for the pollution?. Prevention is always better.

    Good point
    There has to be economic incentive to live an eco friendly life style as well a value driven cultural incentive.
    American (and for that matter Western Civilization’s in genreal) Hummerism is not the solution.
    Growth in the economy is not going to come from consuming more but consuming more efficiently. This is very important for india to learn.
    It may be delusional wishful thinking for me to think so but i have a strange feeling that india b/c of its high population density and a different cultural pattern will come with a solution. Its not going to be a particular thing but a dozen or so things that will enable efficiency. I live in US and I am surprised by the volume of garbage that my neighbors generate. US has a growing overweight crisis. One cure for obesity is not to overeat yet i guess this is difficult for people to do. This is the challange for india. Consume Enjoy Life, But not to neglect its human problems along with tigers, elephants and plantlife.

    Comment by Guru Gulab Khatri — December 2, 2005 @ 11:00 am

  8. As other people have alluded here, ‘paving with plastic’ is short-sighted.. You have just transferred the pollution someplace invisible, but it is still there. Have any detailed hydrological studies been done on their effect on surrounding (underground) water tables?

    Think of sustainability.

    Comment by Amit Kulkarni — December 2, 2005 @ 4:08 pm

  9. environmental policy is a classic case of network externality. The user of the plastic bag does not take into account the cost to the rest of the population.
    When you assign prperty rights and when transaction costs are ZERO, there are no network externalities. there is debate on whether who own the property rights matters or not. Its still a contentious issue among economists. But the main solution to such problems is assigning property rights. Generally property rights should be assigned to the least cost avoider. i.e. in case of companies polluting river, it should be assigned to the company, similarly for side feects of drugs it should be assigned to the drug company. But in case of a woman suing McDonald for hot-coffee may be it should be assigned to the user.

    In case of plasic bag, the blogger says the property rights should be assigned to the consumer of plastic bags and not the producer. That might be a better solution, but whats not disputable is that someone should own the property rights.

    How can this be done.

    a. taxing the usage of plastic bags so that we come close to the efficient outcome and social waste through taxation is lower than “irresponsible” use of plastic bag. And of course once you tax a good its not just the producers who bore the brunt, but consumers WILL share the burden of that depending on the elasticty of the demand for plastic bags.

    b. Having a penalty for the user. This can be in form of ine. As the blogger argues, the success of that wil depend on how it is implemented because a risk averse user might still continue to flout laws if the probability of enforcement is low.
    One major objection to this solution would be that the producer is ABSOLUTELY NOT concerned about the social cost incurred by the rest of the population.

    Although having a penalty at the point of disposal is a good idea, if we agree that there is a social cost associated with producing bio-non-degradable material, taxing plastic bag manufacturers is something which needs to be advocated. Why a tax is justified even from the perspective of a “market economist” is because the outcome produced by not taxing the good IS NOT EFFICIENT.

    Regarding banning the use of plastic bag or non-CNG buses. I wont argue that this is a wrong solution for all the scenarios. Why? Because banning a plastic bag would take away a certain consumer surplus. But producing plastic bags is going to createa social waste. If the government can not come up with ways so that the consumer surplus is more than the social waste produced (having penalties, taxing plastic bag manufacturers etc.), then banning a plastic bag might be a “more efficient outcome” than producing it. Again, I am not arguing its a good solution, but it can be one of the solution depending on how the demand supply situation is in the long run.

    The problem with tackling these issues is insufficient information. We dont know what the right amount of penalty should be, we dont know whats the effective tax rate should be. and we dont know who is the least cost avoider.
    An in depth research is needed on consumption of palstic bags, their disposal, the social cost incurred, and once a somewhat accurate data about the demand supply of plastic bags is obstained and an elasticity of demand is established, we can go ahead and mull the solutions. e.g. Taxing, banning or charging consumers or combination of 2 of those.

    There are quite a few classic cases where network externalities play a big role.
    1. should a housing community expect a certain level of cleanliness and beautification because absent of that prices of houses in the nighborhood drops. or a person should be allowed to keep his/her house the way he wants.
    2. Water polluting industries
    3. Side effect of drugs, especially for fatal deases like cancer and aids. What if the intended side effects are something producers havent encountered before

    I dont think there is one right solution in this case. It should be a trial-error solution to get close to the efficient outcome and reduce social waste unless we have complete information.

    Comment by ik — December 2, 2005 @ 9:42 pm

  10. In Holland, this works very well. Shoppers are charged (around 50 cents if I remember correctly) if they want a plastic bag to go with their shopping. This is complemented with an education campaign on the environment that has been going on for years. Thus, shoppers are encouraged to bring their own cloth bags to the store when they come to shop.

    Coupled with this, stores are fined according to the number of plastic bags, so it is an incentive for them to sell less bags and educate consumers. Of course an extremely complicated national inventory system must be in place for plastic bags otherwise such a system would not work. And we all know how difficult, complicated and bureaucratic such a system would be in India…anyway, this is one solution :-)

    Till then, the educated, like us, can begin to take cloth bags to grocery stores so we can carry more than just a banana without using plastic bags. It would also help if we educate other people to do the same. Environmentalism begins at home and you dont need a capitalistic reason for that, just a sense of responsibility.

    And as Amit Kulkarni said above, paving roads with plastic is just shifting the problem from a visible area to a hidden one. There are a lot of pollutants created when plastic bags are manufactured as well, this system will not aliminate or affect them.

    Comment by Pranay Da Spyder — December 2, 2005 @ 9:44 pm

  11. after reading the comments, i am in more agreement with thoughts expressed by Alok. those seem to be coherent with what I have learned in economics.

    Comment by ik — December 2, 2005 @ 9:45 pm

  12. “Another way is to impose a tax on purchase of plastic bags. This is a good idea, and I might even support it if the money collected from the tax is used in collecting the garbage and disposing of them properly. This is a better idea because it imposes the costs where it belongs. It also puts the decision into my hands. Do I choose convenience or pay the price? It is upto me.”

    Thats missing the point of taxation!

    I think how the tax money is sued is irrelvant. The purpose of the tax is to reduce social waste caused by production. As long as the money is collected, its enough to reduce social waste or what economist called “deadweight loss”. How the tax money is used will affect who gaisn more out of the whole scnario. If a corrput offical gets it, then he wins, the government loses. If government uses it to impose penalties then we might come even closer to the efficient outcome. But the main point of tax is to reduce deadwight loss.

    Of course a btter uses can be made of tax-colletion. But taxing pollution isn’t done for generating revenue. ITs done for avoiding social waste!

    Comment by ik — December 2, 2005 @ 9:58 pm

  13. NaiKutti,

    Why pollute at first place and then charge for the pollution?. Prevention is always better.

    I am amazed by the simplistic thinking behind this comment. Are you ready to stop using electricity to ‘prevent pollution’? Isn’t prevention always better?

    Comment by Eswaran — December 2, 2005 @ 11:14 pm

  14. “Environmentalism begins at home and you dont need a capitalistic reason for that, just a sense of responsibility.”

    To the above comment by the poster, I have this to say. Unfortunately, for us and for the world, we all are now in the grips of a “rights” based culture, instead of a “duty” based culture. Indic culture was duty based to begin with but in 2005 with our “rights” based culture enshrined in our Constitution, things have become what they could be come because (1) Indic society for most parts in not an injunction based society, e.g., for most Hindus there is no word of god, (2) without such injunctions (and I am not saying, word of god injunctions are the solution), ethical behaviour in our current “rights” based society is bound to go downhill, which is why as a people we are probably more corrupt.

    Freedom with responsibility is the way to do, whether with plastic bags or with anything else.

    Comment by sanatan — December 2, 2005 @ 11:45 pm

  15. Imposing costs where due

    The Indian Economy blog has this excellent post about imposing costs where it is due. In this case the argument is in context of banning of plastic bags in (parts of ?) India. Excellent read. The comments are worth pursuing too.

    Trackback by Corelations — December 3, 2005 @ 12:45 am

  16. “Tax” for plastic bags and using the Tax for disposing them raises a concern whether the Tax money will be efficiently (or fully) utilized in an already corrupt political system. It is like, letting the people to pollute and then punish them. While the economics work out well for the idea, the reality will be different. I would rather prefer the govt to use existing Tax money to recycle plastic and to increase awareness among people on Recycling. With this view for a short term, I would also wish to see in a long term, Scientists giving us revelations to new materials that can be eco-friendly and bio-degradable by natural processes.

    Comment by Dinesh babu — December 3, 2005 @ 2:37 am

  17. The fact that the drains and roads are not individually owned, is a factor that I think is being missed here.

    Comment by Nilu — December 3, 2005 @ 6:28 am

  18. This is an interesting post and a very informative. Just recently I had read that in a single area on Mumbai over 15 tonnes of Plastic garbage was recovered(I dont remember the name, it starts with M for sure)
    A suggestion I would like to give is make people aware of places where they would know where to dispose the plastic bags or sell them(like selling off old newspapers). It would make people know where to get rid of them. It would help almost everyone concerned.

    Comment by Rahul M — December 3, 2005 @ 7:46 am

  19. Points to ponder for those who do not know the menace of plastic:

    1) Who pays for existing pollution, which can’t EVER be cleaned up? A perfect example: thin plastic bags floating in the ocean. I was thinking of this as a possible research topic but…

    Googling for “plastic captain charles moore” gives us this.

    How can you capture that plastic and isolate it until it decomposes?

    2) I agree that you trade convenience vs. function, but aren’t ‘plastic bags’ mostly replaceable by other things. Multiple cloth bags, for example, (called tote bags) as pointed by Pranay for shopping purposes. Plastic bags in the kitchen can be replaced by other utensils: wooden, metals etc. Agreed there are some places plastic is difficult to replace, and it will be so for quite a while.

    In the case of plastic derived from oil (synthetic plastic with complex polymer chains which no bacteria can degrade naturally), after peak oil is reached, biodegradable plastic would be used. Shouldn’t this be accelerated right now by pricing synthetic plastic way too high? Can’t somebody with big money throw their weight around this stuff? Get certified biodegradable ‘plastic’ bags with different expiry dates from manufacturing date: 6 month, 1 yr, 2 yr, 5 yr, 10 yr. After which they are bound to decompose, they also decompose when they meet certain other conditions (I am not sure what they should be). Bio plastic is a reality today! It needs incentives from the government to fix the chicken-n-egg issue.

    But the reality is that the plastic (the climate too) juggernaut could overwhelm us before technology can act. They need to ban plastic bags which is causing ‘volume pollution’. We do not dispose for eg. knives with plastic handles in billion plus quantities. (And yes, I deliberately chose to illustrate with a knife example)


    Comment by Amit Kulkarni — December 3, 2005 @ 7:52 am

  20. OFFTOPIC TO THIS POST, but still important.


    What is the intended use of me supplying the email id while posting? I supplied correctly a few times with the expectation that I would be notified of new comments. I am not being notified, it has been a while since this group blog is up, (it runs WordPress, which should be capable of email notification) so is that feature under somebody’s implementation schedule?

    Thanks in advance

    Comment by Amit Kulkarni — December 3, 2005 @ 7:59 am

  21. amit,
    if plastic is highly substitutable then taxing plastic bags to alevel where the cost to the consumer is equal to using paper bags or other eco-friendly stuff, it should automatically solve the problem. if thats indeed true then the tax on plastic bag isn’t enough.

    paralle – petrol is not substituable, so taxing petrol wouldnt reduce the demand as much as it would for plastic bags. and thats why as Alok puts it, it was necessary to ban the non-CNG vehicles because taxing wouldnt have solved the problem. Petrol demand is highly inelastic. So to avoid social waste given all the constraint – probably best solution was to ban the vehicles not running on CNG.

    Comment by ik — December 3, 2005 @ 8:20 am

  22. Just a few points of economic theory. ik is wrong when s/he is saying when transaction cost is zero there is no ‘network externality’. Indeed externalities remain. But they are taken care of (contrary to what s/he says, it does not depend on who owns the legal rights). Coase theorem (won Coase a nobel) is celebrated because it shows if there is zero transaction cost, market can solve the problem of externalities (like pollution) and produces an ‘efficient’ solution, without resorting to any external intervention. Of course it is criticised as it does not take into account distributional considerations etc.

    On this particular question of plastic bags, CNG etc., I suppose taxing at no point will solve the problem. Apart from the flawed philosophy that you can pollute if you are rich, the enforcement is an enormous issue, especially in a poor country like ours. Banning seems to be the only solution. We can learn to carry our private bags to the store. Individual preferences are known to be quite adaptive to legal, social environs.

    Just a quick thought. For all the celebration over CNG in Delhi, has anyone thought of implementing it on private cars, which far outnumber other vehicles and pollute the most? The elite policy makers and public opinion manufacturers stand exposed on such obvious matters.

    Comment by aman k — December 3, 2005 @ 12:10 pm

  23. In Australia,the supermarkets have recently started selling reusbale bags, priced at less than a dollar.These bags also carry the logo/name of the supermarket(free advertisement too) and in a span of just one year the idea caught on so much that many markets have reported a 25-40% reduction in the number of plastic bags used by their consumers.Infact it has become a matter of pride for people to be seen shopping with these bags as it establishes ur credentials as someone who cares for the environment……..I know Indians shop diffrenetly and plastic will laways be with us but what about reusable bags??? After all it is in our countries that these bags hve been used for generation.remember the good old “Thaila”.My father used these cloth bags all his life and whenever we asked him to change to plastic he would just shrug off the suggestion and continue with his bags………We have had a gud habit and have thrown it away for convenience and ishtyle.Now we need to borrow back/reclaim this gud practice from the west……..The more glamorous shops already provide paper bags instead of plastic and we need to popularise the idea more.In the meantime there is no escaping the waste disposal issue.We need to “reduce,reuse and recycle”…… Even a small surcharge charged by shops for plastic bags will bring the use down as we Indians hate to throw good money away………with the younger generation we need to repopularise the idea of “thaila/jhola” by making it “COOOOOOL” to be seen refusing/carrying plastic bags.
    Let us start from home.All those reading this comment please strat keeping a couple of large jute/cloth bags in your car and ask the shopkeeper to load ur stuff into these.Say loudly and clearly ” No, Thank you” when offered a plastic bag..Do ur bit before hounding others.Lead by example.I do….but that is another story.Will tell you about it next time……

    Comment by Vandana — December 3, 2005 @ 12:55 pm

  24. “Just a few points of economic theory. ik is wrong when s/he is saying when transaction cost is zero there is no ‘network externality’.”

    aman, i didnt say network externalities dont exist when transaction costs are zero, i said, when property rights are clearly defined and transaction costs are zero, network externalities dont exist. and as far as i know, thats true. coase’s therorem.

    Coase’s theorem is criticized because its misunderstood. “Of course it is criticised as it does not take into account distributional considerations etc.” but he assumes that the transaction costs are zero. Our prof. told us a fascinating story about how him, a few others and coase fought over that one whole night after he presented it in a seminar and by the morning he convinced everyone.

    He won the Nobel prize because it became a very useful tool for litigations. All the judges take seminars and courses just on this to understand how property rights should be assigned.

    coase’s theorem doesnt talk abt how property rights should be assigned.

    in general transaction costs arent zero. so, who owns the rights determines transaction costs. (thats true.. just try doing a model where a company pollutes a river. in one case people own the right to the river and company has to pay them not to pollute. in other case the company opwns the right and people have to pay the company. if transaction costs are zero, it wouldn’t matter who owns the preperty rights. but clearly every person paying the company would incur a lot of transaction costs. so the company is the least cost avoider and the property rights should be assigned to the company. got it! )and thats why the least cost avoide should own the right, that way somewhat internalizing the network externality is possible and we come close to the efficient outcome.

    to say that taxing wont solve the problem is simplistic. there must be a level of tax which should solve the problem. we can debate on whats the best way to solve the problem is and how we should go about it.

    as Alok says, making them at least 10 times more expensive might make sense.

    “Apart from the flawed philosophy that you can pollute if you are rich,”

    I didnt quite understand how this is correlated to the taxation issue. Of course if you are rich you have more ability to pay for costly plastic bags. But if the substitutes are cheaper, why would a rich person pay for a plastic bag. wouldnt he/she go for the substitute. Secondly, for plastic bags, pollution etc. including human life, there is an efficient quantity that we can sacrifice for an efficient outcome (When I say human life, I am sayign a statistical human life, not actually killing someone). and if the tax is able to achieve that then why not?

    Your issue about implementation is valid. and that should be looked into.

    Comment by ik — December 3, 2005 @ 6:28 pm

  25. Eshawaran, I hope you read the full comment. The point was that people are always ready to pay (to pollute), like ik mentioned about petrol and hence the best way is to stop pollution at source and that could be done only by stringent government policies. Probably my comment made it way too simplistic :-). So asking people to pay more money for polluting is not a good idea — thats what I meant!

    Comment by NaiKutti — December 4, 2005 @ 10:16 am

  26. hi, ur blog is a good read . this flodding and sevage jam due to plastics etc has been discussed widely for quite some time. when ever theres rain and any city is flooded. the culprit is “plastic bags”. I agree that plstics bags are not good for severlthigns but point here is different.
    why did that plastic bag clog the sevage?
    does that plastic bag has affinity for the seavage
    Or people love to dump it in gutters.
    OR is it because the munciple corporation the city body didnt had time to clean the seavages on time regularly.

    every time theres any such incident one or the other execuse is found either a plactic problem or old construction or infrastructure etc etc
    Reality is Our Civic bodies have become a virtual mess and a political playGround. they dont have time to think about the city and the people for whom they exist.they are the best examples of Babudom.
    India is not alone from China to UK Africa to US all cuntries use plastic and many such other items having potential to clog the drain. but that clogging never happens in there cities…..

    some ideot babu/neta will give our people a execuse and all of us a good citizens we are started beiving him …..

    Comment by puneet — December 6, 2005 @ 5:03 am

  27. Hi ik,

    Here are my clarification.

    1. By ‘network externalities’ or externality (more correct term), it is meant that what I am doing, affects someone else. Surely it remains irrespective of whether rights are defined, transaction cost are zero or not etc.

    2. Coase theorem does not take into distributional consideration because it implements a ‘pareto efficient’ solution, which does not care how the income among the people is distributed. Time to brush up economics books ;-)

    3. The idea behind rich will pollute more if there is taxation is, when people decide whether to buy plastic bags (thus paying taxes) or not, they consider what is the opportunity cost of doing so. For the rich if they do spend the money on plastic bag it does not hurt them much. So they go ahead and use it. For the less rich, the opportunity cost of using plastic bags is high, so they do use them. In short, the substitution is between money and bag. For the rich, one unit of money does not mean much.

    Comment by aman k — December 6, 2005 @ 11:08 pm

  28. Here are my clarification.

    “1. By ‘network externalities’ or externality (more correct term), it is meant that what I am doing, affects someone else. Surely it remains irrespective of whether rights are defined, transaction cost are zero or not etc. ”

    I dont think this is true.

    Your second point: I havent studied criticism of Coase’s theorem, but as far as I know, or what I have been taught, Caoses theorem is applicable if those 2 conditions satisfy. I am not saying its right, but can you give me a model where because of income distribution there are network externalities when property rights are assigned and T.C. are zero. I havent seen any example.

    I agree that many times its impossible to define property rights. e.g. the air we breathe. So, there will be externality. But Coase’s theorem doesnt object to this. It says if property rights can be assigned and T.C.s are 0.

    3rd point:
    A rich person will consume more plastic bags. No one is arguing about it.

    But given a current income distribution a tax on plastic bag is going to reduce consumption of plastic bags. How much it will change depends on the elasticity, right? It can be different at different income levels points. But there has to be a point even on rich peoples curve where the elastcity would be very high, i.e. they would substitute away from using plastic bags, or would use enough to get us closer to the equilibrium quantity. Now, we would want to tax the plastic bag manufacturer accordingly.

    Our aim is to reduce overall consumption of plastic bags. Rich people spend more or less is immaterial. As long as total production drops we are happy. and if rich people ar using it because of certain fascination with plastic after paying obscene amount for the bag its okay because the overall productiuon has dropped.

    Comment by ik — December 7, 2005 @ 3:56 am

  29. First Niagara Financial “outperform,” estimates reduced
    NEW YORK, September 12 ( – Analyst Anthony R essiac of Ryan Beck & Co maintains his “outperform” rating on First Niagara essiac ( FNFG.NAS ), while reducing his estimates for the company. The target price is set to $16.

    Comment by essiac — September 12, 2006 @ 9:55 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

Powered by WP Hashcash

Powered by WordPress