Elasticity of demand, price and time: lessons from South Africa's plastic-bag levy

Abstract

Policy makers in many countries have perceived plastic-bag litter as a problem, and have used a variety of regulatory tools to address it. South Africa's current legislation on plastic-bags came into effect on 7 May 2003. It increased the thickness of the plastic used, charged a small levy and required that bags be sold rather than distributed gratis. These regulations sharply reduced consumption of plastic bags in the short term, but unlike the Irish and Danish levies have failed to curb their use meaningfully in the long run. It is suggested that the initial sharp fall in use of bags was a result of loss aversion rooted in an endowment effect (the bags having long been a free good). Once consumers became accustomed to paying for bags, demand slowly rose to its historic levels.

Keywords:

• demand
• elasticity
• levy
• plastic-bag
• price

JEL Classification:

• Q53
• Q58

Acknowledgements

The authors would like to thank two anonymous referees for their comments. The authors are grateful for financial support from ERSA (Economic Research Southern Africa), and to SIDA (Swedish International Development and Cooperation Agency) for funding via the EfD (Environment for Development) initiative. This article is based on the ERSA policy paper number 18, July 8 2010, University of Cape Town, South Africa, Analysis of the plastic-bag levy in South Africa, ERSA policy paper number 18, July 8 2010, University of Cape Town, South Africa.

Notes

¹ McConnell and Brue (1999, pp. 499–501); O'sullivan and Shefrin (2002, pp. 98–100); Pindyck and Rubinfeld (2005, pp. 38–43); Sloman (2006, p. 50); Lipsey and Chrystal (2007, pp. 72–3); Slavin (2009, pp. 449–52); Mankiw and Taylor (2011, pp. 95–6).

² The success of the Irish levy is both attributed to the level of the charge being set sufficiently high and a proactive advertizing campaign popularizing its implementation.

³ For more details see Dikgang et al. (2010).

⁴ On average, across all major retailers, the price fell by 46%.