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Incentive contract design for food retailers to reduce food deserts in the US

Author

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  • Bastian, Nathaniel D.
  • Swenson, Eric R.
  • Ma, Linlin
  • Na, Hyeong Suk
  • Griffin, Paul M.

Abstract

In the US, obesity affects over 37% of the adult population and over 16% of the child and adolescent population. Although not-for-profit agencies cannot directly control what a person eats, they can influence the supply side of the obesity epidemic by incentivizing food retailers to open stores in regions of the US where food deserts exist. An incentive contract design dependent upon performance and resulting health benefit is presented for food retailers to reduce food deserts in the US. A principal-agent framework is used to capture the competing interests and moral hazard from the contracting mechanism. Optimization models are developed to determine the most effective and equitable resource allocations from the initiative given a target reduction in obesity rate or a set budget, while determining the optimal subsidy these agencies should offer to food retailers to incentivize operation in certain counties. These subsidies are designed to create financially viable conditions for food retailers to offer high quality, healthy food alternatives. The impact of retailer location on obesity is based on estimates of marginal effect on obesity rate. Given an example initiative in metropolitan Atlanta, Georgia and surrounding counties, the overall county-wide obesity rate would decrease by 1.17% with a fixed budget of $400M. Sensitivity analysis on the reduction in obesity is performed for varying total budget amounts. This incentive contract design strategy is a positive step toward ensuring that the underserved US population has better access to healthy foods while helping solve the obesity epidemic.

Suggested Citation

  • Bastian, Nathaniel D. & Swenson, Eric R. & Ma, Linlin & Na, Hyeong Suk & Griffin, Paul M., 2017. "Incentive contract design for food retailers to reduce food deserts in the US," Socio-Economic Planning Sciences, Elsevier, vol. 60(C), pages 87-98.
    • Handle: RePEc:eee:soceps:v:60:y:2017:i:c:p:87-98
    DOI: 10.1016/j.seps.2017.03.003
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    References listed on IDEAS

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    1. Rahkovsky, Ilya & Snyder, Samantha, 2015. "Food Choices and Store Proximity," Economic Research Report 210316, United States Department of Agriculture, Economic Research Service.
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    3. Bonanno, Alessandro, 2012. "Food Deserts: Demand, Supply, and Economic Theory," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 27(3), pages 1-4.
    4. Douglas J. Besharov & Marianne Bitler & Steven J. Haider, 2011. "An economic view of food deserts in the united states," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(1), pages 153-176, December.
    5. Cawley, John & Meyerhoefer, Chad, 2012. "The medical care costs of obesity: An instrumental variables approach," Journal of Health Economics, Elsevier, vol. 31(1), pages 219-230.
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    2. Biswal, Arun Kumar & Jenamani, Mamata & Kumar, Sri Krishna, 2020. "The impact of RFID adoption on donor subsidy through for-profit and not-for-profit newsvendor: Implications for Indian Public Distribution system," Socio-Economic Planning Sciences, Elsevier, vol. 69(C).

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