PLASTIC BAGS

Plastic Bags

Plastic Bags

Question 1

There is widespread usage of polythene material in packaging and we shall soon put measures in place through our by-laws for companies involved to assist the city council in the disposal and management of the waste. Plastic bags provide several million habitats for mosquitoes to breed that increase the risk of malaria. In the 1970s and 1980s, Nairobi, the commercial and communications hub of East and Central Africa was famously known as the 'The Green City in the Sun'. Magnificent skyscrapers, salubrious suburbs, forested parklands and arteries of well-landscaped boulevards characterized the City. Nairobi's present image, by and large, stands in marked contrast to its former self. For example, today, Nairobi is littered with some rather 'beautiful flowers'. Plastic packets generate true technological externalities. They cause environmental disutility and divert municipal resources from productive uses to litter cleanup; in doing so they shift society's production possibilities frontier inwards, reducing both the economy's productive capacity and the society's aggregate welfare (Lotpeich, 2007, 36).

By contrast, the 'adverse' impacts of the new plastic bag regulations on manufacturers of the packets constitute only pecuniary externalities. The shift to thicker re-useable bags may hurt individual polymer importers and bag manufacturers, but should not decrease the productive capacity of the economy as a whole. Neoclassical theory argues that marginal cost pricing is necessary to maximise welfare. Certainly this has been disputed, but it is well established in the literature and provides the only real standard under partial equilibrium. Where use of a product generates an externality, the welfare optimising quantity of that product (Q*) is reached when its price equals its marginal social cost (MSC). The policy maker's aim is to achieve this optimal level of output (Q*). The preferred approach in the literature is the use of market-based instruments (Lipsey, 2007, 84).

These typically internalise the value of the externality into the private price paid for the good thereby shifting effective demand. The product charge currently levied on plastic bags is a conventional Pigouvian tax. To be optimal it would have to raise the price of packets till it equalled their marginal social cost. A Pigouvian tax is 'fair' in the sense that consumption choices are made by individual agents. This enhances efficiency as individuals have the flexibility to pursue their best option. Thus, while some shoppers purchase long-life shopping bags, others choose to re-use plastic ones and yet others prefer to pay the tax. Importantly, a tax allows authorities to affect the decentralized decisions of millions of consumers. A contentious issue is whether this revenue should be earmarked for 'green' causes or simply directed into the National Treasury (Hanley, 1993, 31).

The free provision of flimsy plastic shopping bags in Australia involved two market failures. Firstly, the plastic bags did have a market price, their marginal private cost (MPC), but the supermarkets providing them 'as a service to customers' hid that price, so that the bags were considered as 'free goods'. Secondly, the bags generated a negative externality, their marginal ...