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Perverse Incentives

Ruchira Shah | Tuesday 26th May 2009

Sara recently wrote a nice post about how to incentivize behavior: should we enact bans, do we tax, or do we create incentives to get people to live sustainably? It's a tricky question, but I'll tell you what we should not do. We shouldn't have PERVERSE incentives!!

The VAT tax is just such a perverse incentive.

For whatever reason, if you ask for your coffee for take away, VAT isn't charged, which means that your coffee is cheaper. Of course, you also are using a disposable cup, and maybe a little sleeve around your cup. Not to mention the plastic cap.

However, if you sit down and enjoy your coffee in the store, well, you may save yourself the waste, but you'll be charged more. This maddens me. I'm sure policy makers at one point or the other had a reason to tax drinking in, but personally, I think this policy needs to be revised. We may not have yet decided whether to incentivize or to tax, but at least, can't we agree that perverse incentives have got to go?

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