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Wednesday, May 20, 2009

Social Norms as Taxes on Behavior

How do social norms form?:

Scholars Create Alliance to Foster Research on Sustainability, Strategy, and Management, University of Michigan: ...Researchers ... gathered at the Ross campus ... in the first Alliance for Research on Corporate Sustainability (ARCS) conference. ...

The increasingly interdisciplinary nature of the field makes the need for an annual gathering of leading scholars more relevant today than ever, says Andy Hoffman... "Researchers in economics, strategy, and public policy need to learn to speak each others' language," Hoffman says. ...

Hoffman cited one example of an Irish government policy that neatly ties together how different lenses can be useful in studying the policy and business effects of sustainability efforts. In 2002, the Irish government tacked a 15-cent fee on plastic grocery bags. Within a year, plastic grocery bag use dropped by 94 percent.

A straight economist's view could conclude that pricing works. But Hoffman says there are other things to consider. "A price is never socially inert," he says. "A social norm formed. One person said using a plastic grocery bag is on par with wearing a fur coat or not cleaning up after your dog. How does that norm form?"

A look at the culture of Ireland shows a relatively young population, which typically makes for a good innovation test bed. There were no domestic plastic bag manufacturers in Ireland, so there was little political risk of imposing the fee. ... But unintended consequences arose. Some consumers started buying plastic trash bags to carry groceries. And so the research continues. ...

I will have to admit that if I was asked how to discourage the use of some product, my response would be to find a way to increase its price, a tax or surcharge, something like that, but I'm not sure I would think about - or even know where to begin if I did - ways to change the social norm regarding the use of the product. That's just another way to raise the price and hence discourage the use of the product, it's a form of a tax, and it's an interesting one because no money changes hands in the process. We simply have to be programmed to care what other people think about us, even strangers, something that seems to be built into our behavior.

At first I thought that might mean that social norms are preferred to taxes since the desired result is achieved without any transfer of resources, and because taxes can distort economic outcomes. But social norms can also distort outcomes since they operate like taxes. For example, a social norm supporting discrimination would lead to a less than optimal allocation of resources in an economy and hence would be counterproductive. I can even imagine cases where taxes could be used to try to offset damaging social norms, though I can't think of any concrete examples.

But it would be useful to have a better understanding of how social norms and taxes/fines interact. For example, suppose you want to discourage kids riding in cars without seat belts. Legislators could pass a law - based upon research showing its clear benefits - that imposes a fine for anyone caught allowing their kids to ride in the car without being buckled in. That would certainly have some effect on behavior, but probably not as much as if it became viewed as unnecessary endangerment by society generally (perhaps abetted by a billboard campaign, etc.). The change in the social norm would likely have a much larger effect on people's behavior. Econometrically, it would look like the imposition of the fine had a huge effect on seat belt use, but was it the fine itself that generated the change in social norms, or would the social norms have changed anyway? If the behavior had never been made illegal in the first place, would attitudes have changed as fast? Was it the change in the norm that caused the tax? When you are looking at the effect of a tax on behavior, how do you sort all of this out?

    Posted by on Wednesday, May 20, 2009 at 11:17 AM in Economics, Taxes | Permalink  TrackBack (0)  Comments (23)


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