2. Promoting Recycling: Incentive Based Approaches and Behavioral Responses John Thøgersen Aarhus University, School of Business and Social Sciences Denmark Keep America Beautiful’s Fall Recycling Symposium: Re: Psychology, Making Recycling Second Nature

3. Economic instruments – waste and recycling 1. Waste taxes 2. Waste collection charges 3. Taxes on raw materials and products 4. Deposit-refund schemes 5. Subsidies and fiscal incentives 19/6/08Incentive Based Approaches and Behavioral Responses 2 Source: Oosterhuis et al. (2009).

4. 19/6/08Incentive Based Approaches and Behavioral Responses 3 The rationale Too much waste is generated and too little recycled because relative prices are not reflective of total social costs –“Perverse subsidies” (Holliday & Pepper, 2001) favor wasteful practices Change the relative costs and benefits of disposal/waste avoidance/recycling behaviors in order to make it more profitable for the individual to act in accordance with the collective interest

5. Relationship between waste generation and waste policies 19/6/08Incentive Based Approaches and Behavioral Responses 4 Source: OECD (2011).

6. 19/6/08Incentive Based Approaches and Behavioral Responses 5 Themes Intended and non-intended effects of economic incentives Economic incentives and motivation “crowding out” Case: A pay-by-weight scheme for household waste

7. Intended and non-intended effects of economic incentives 19/6/08Incentive Based Approaches and Behavioral Responses 6

8. The development in the number of plastic bags, Denmark 19/6/08Incentive Based Approaches and Behavioral Responses 7 Source: http://www.plast.dk.

9. Household waste in Varberg, Sweden Note: Pay-by-weight scheme introduced in 1995. (1997 estimate based on first 6 mo.) 19/6/08Incentive Based Approaches and Behavioral Responses 8

10. 19/6/08Incentive Based Approaches and Behavioral Responses 9 Motivation “crowding out” Price incentives, being externally controlling, may undermine intrinsic motivation –Reduced feeling of self-determination and/or competence leads to a shift from an internal to an external locus of causality –Over-justification a person’s own interest in the behaviour is discounted when he or she is given an extrinsic reason for doing something they would have done anyway ( Lepper & Greene, 1978)

11. 19/6/08Incentive Based Approaches and Behavioral Responses 10 Standard economic model

12. 19/6/08Incentive Based Approaches and Behavioral Responses 11 Crowding out with a negative net effect

13. 19/6/08Incentive Based Approaches and Behavioral Responses 12 (Frey & Oberholzer-Gee, 1997) % Motivation crowding out among voters in Switzerland A “referendum” about accepting a nuclear waste repository in one’s community Some offered compensation, others not Compensation offered: $2,175 - $6,525 per individual and year

14. 19/6/08Incentive Based Approaches and Behavioral Responses 13 (Gneezy & Rusticini, 2000) Volunteers collecting money for a cause Volunteer collectors: 180 pupils divided into three groups –1: Motivation speech –2: Motivation speech and 1% of collection –3: Motivation speech and 10% of collection Who collected the most money? –Group 1: Highest intrinsic motivation Who collected the least money? –Group 2: Crowding-out of intrinsic motivation Conclusion: Pay enough or don’t pay at all!

15. 19/6/08Incentive Based Approaches and Behavioral Responses 14 (Weibel et al., 2007) Effects of tangible awards on work performance Meta-analysis based on 51 studies/155 subgroups (n = 46.363) Experimental studies which a) address the effect of incentives on task performance, b) report “hard” performance measures, c) manipulate tangible incentives on an individual level, d) have a control group Effects on extrinsically motivated tasks =.42 Effects on intrinsically motivated tasks = -.13

16. 19/6/08Incentive Based Approaches and Behavioral Responses 15 Norms and pro-social behavior Internalized extrinsic motivation Prescriptive norms not necessarily internalized –Subjective vs. Personal norms If a monetary incentive to promote environmentally desirable behavior renders (internalized) personal norms irrelevant due to overjustification, the behavioral impact of the regulation could be severely reduced

17. 19/6/08Incentive Based Approaches and Behavioral Responses 16 Can regulation enhance internalized motivation? If it increases targeted individuals’ perceived competence and/or their experienced autonomy with regard to the desired behavior If it creates or strengthens social and perhaps even personal norms regarding the promoted behavior –Regulation signals a social norm –Also more specific signals, e.g. about the severity of the targeted problem and the individual’s responsibility for solving the problem

18. 19/6/08Incentive Based Approaches and Behavioral Responses 17 Norms and pro-social behavior Internalized extrinsic motivation Prescriptive norms not necessarily internalized –Subjective vs. Personal norms If a monetary incentive to promote environmentally desirable behavior renders (internalized) personal norms irrelevant due to overjustification, the behavioral impact of the regulation could be severely reduced

19. 19/6/08Incentive Based Approaches and Behavioral Responses 18 Hypotheses If an economic incentive is offered, rewarded behavior becomes more and punished behavior less prevalent (the price-effect) If an economic incentive is offered to promote a previously internally motivated behavior, the internalized motivation is undermined An economic incentive may enhance internalized motivation by strengthening perceived competence (self-efficacy) with regard to the desired behavior If an economic incentive scheme is introduced, pre-existing injunctive norms about the behavior are reinforced

20. 19/6/08Incentive Based Approaches and Behavioral Responses 19 Data Postal survey, random sample, collected in 2000 –Response rate 41% –1955 respondents From matched groups of municipalities –3 w. and 3 w.o. pay-by-weight scheme for garbage collection –Residents in home w. garden (Thøgersen, 2003)

21. 19/6/08Incentive Based Approaches and Behavioral Responses 20 Measures Municipality group (w./w.o. pay-by-weight scheme) Knowledge of the type of garbage collection fee (1 item) Self-reported recycling behavior (3 items material recycling, 2 items composting) Opportunities for material recycling (1 item) Opportunities for composting (1 item) Personal norms (2 items material recycling, 2 items composting) Perceived self-efficacy (6 items material recycling, 2 items composting)

22. 19/6/08Incentive Based Approaches and Behavioral Responses 21 Data analysis method Structural equation modeling –possible to calculate measurement error when a latent variable of interest is represented by multiple manifest variables Full Information Maximum Likelihood –Most efficient method to deal with missing values because it minimizes the loss of information and, hence, statistical power, and leads to the most unbiased parameter estimates even with nonnormal data

23. 19/6/08Incentive Based Approaches and Behavioral Responses 22 Pay-by-weight and waste handling: Composting and material recycling N = 1955 1 The model is saturated (Thøgersen, 2003)

24. 19/6/08Incentive Based Approaches and Behavioral Responses 23 Difference in material recycling kg/ household/year (Thøgersen, 2003)

25. 19/6/08Incentive Based Approaches and Behavioral Responses 24 Source- separation R 2 =.73; CFI = 1.00 (Know the) Pay-by-weight system.17 Self-efficacy.16 Own Composter.37.32 PN (Obligation).35.78.60.66.28.33 (Thøgersen, 2003) Pay-by-weight, motivation and source-separation

26. 19/6/08Incentive Based Approaches and Behavioral Responses 25 Conclusions Under realistic and not uncommon conditions the non- economic motivational impacts of a (small) economic incentive can boost its effect on behavior over and above that of the direct price-effect –Households in municipalities with a pay-by-weight scheme deliver more of their recyclable materials to recycling and compost more of their fruit and vegetable waste in the garden –A large proportion – perhaps most – of the behavioral outcome cannot be attributed to a simple price-effect –A substantial share of the effect of the incentive scheme is mediated through perceived self-efficacy and personal norms

27. 19/6/08Incentive Based Approaches and Behavioral Responses 26 Conclusions Under realistic and not uncommon conditions the non-economic motivational impacts of a (small) economic incentive can boost its effect on behavior over and above that of the direct price-effect –Households in municipalities with a pay-by-weight scheme deliver more of their recyclable materials to recycling and compost more of their fruit and vegetable waste in the garden –A large proportion – perhaps most – of the behavioral outcome cannot be attributed to a simple price-effect –A substantial share of the effect of the incentive scheme is mediated through perceived self-efficacy and personal norms

28. Unintended side-effects Increased private burning of waste Increased waste dumped in public waste-receptors Illegal dumping Increased administrative costs 19/6/08Incentive Based Approaches and Behavioral Responses 27

29. 19/6/08Incentive Based Approaches and Behavioral Responses 28 Wrap up Prices often deviate from total social costs in a way that favours non-sustainable consumption Consumers are often sensitive to prices There is a risk that the use of price incentives undermines intrinsic motivation But this is only an issue in non-market contexts and where intrinsic motivation is an important factor A small performance-dependent price incentive may even strengthen personal norms in some cases

30. 19/6/08Incentive Based Approaches and Behavioral Responses 29 Questions? ?

31. 19/6/08Incentive Based Approaches and Behavioral Responses 30 Additional reading for the involved Thøgersen, J. (2003). Monetary incentives and recycling: Behavioral and psychological reactions to a performance-dependent garbage fee. Journal of Consumer Policy, 26, 197-228. Frey, B. S., & Jegen, R. (2001). Motivation crowding theory. Journal of Economic Surveys, 15, 589-611.

32. 19/6/08Incentive Based Approaches and Behavioral Responses 31 Pay-by-weight and waste handling: Composting and material recycling N = 1955 2 Unique (error) variances of items referring to the same material fraction are allowed to correlate

33. 19/6/08Incentive Based Approaches and Behavioral Responses 32 Correlations between the independent variables Note: Composting in upper and material recycling in lower triangle. 1 p >.05. In all other cases, p <.05.

34. 19/6/08Incentive Based Approaches and Behavioral Responses 33 Reddy (1991) In the USA, for example, '... the rate- making process has the following unintended, but nevertheless perverse, incentives': 1.Electricity profits increase with every additional kWh sold; 2.Electricity profits decrease with every additional kWh saved