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Food Consumption, Paternalism and Economic Policy

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  • Thunström, Linda

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    (Department of Economics, Umeå University)

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    Abstract

    The thesis consists of a summary and four papers, concerned with food consumption, behavior associated with overconsumption of food and analysis of the economic policy reforms designed to improve health. Paper [I] estimates a hedonic price model on breakfast cereal, crisp bread and potato product data. The purpose is to examine the marginal implicit prices for food characteristics associated with health. A trade-off exists between health and taste. For instance, sugar, salt and fat are tasty but can be unhealthy if overconsumed; whereas fiber is unhealthy if underconsumed. If the marginal implicit price for sugar is negative, consumers value health over its taste. Our results are the marginal implicit price for sugar is negative for breakfast cereals and crisp bread—consumers value health over the taste of sugar. For salt, we find the opposite—a positive marginal implicit price, suggesting people value its taste over health. For fat, we find a negative marginal implicit price of fat in breakfast cereals and potato products containing salt, whereas we find a positive marginal implicit price of fat in hard bread and potato products that contain no salt. For the one healthy characteristic, fiber, we find a negative marginal implicit price in breakfast cereals and a positive implicit price in hard bread. Paper [II] uses a general equilibrium model to derive the optimal policy if people overconsume unhealthy food due to self-control problems. Individuals lacking self-control have a preference for immediate gratification, at the expense of future health. We show the optimal policy to help individuals with self-control problems to behave rationally is a combination of subsidies for the health capital stock and the physical capital stock. Paper [III] estimates a demand system for grain consumption based on household panel data and detailed product characteristics, and simulate the effect on grain consumption of economic policy reforms designed to encourage a healthier grain diet. Our results imply it is more cost-efficient to subsidize the fiber content than to subsidize products rich in fiber given the goal to increase the fiber intake of the average Swedish household. Our results also imply subsidies alone give rise to an increase in fiber, and to other unhealthy nutrients. Also, subsidies alone have negative effects on the budget. We therefore simulate the effect of policy reforms in which the subsidies are funded either by taxes on the content of unhealthy nutrients or by taxes on products that are overconsumed. Our results suggest that price instruments need to be substantial to change consumption. For instance, removing the VAT on products rich in fiber has little effect on consumption. Paper [IV] explores habit persistence in breakfast cereal purchases. To perform the analysis, we use a mixed multinomial logit model, on household panel data on breakfast cereal purchases. If habit persistence in consumption is strong, short and long-run responses to policy reforms will differ. Our results are breakfast cereal purchases are strongly associated with habit persistence. Our results also imply preferences for breakfast cereals are heterogeneous over households and the strength of habit persistence is similar over educational and income groups.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 739.

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    Length: 188 pages
    Date of creation: 15 May 2008
    Date of revision:
    Handle: RePEc:hhs:umnees:0739

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    Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
    Fax: 090 - 77 23 02
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    Web page: http://www.econ.umu.se/
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    Related research

    Keywords: food consumption; food characteristics; health; willingness-to-pay; habit persistence; preference heterogeneity; taxation; subsidies; quasi-hyperbolic discounting;

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    References

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    1. Tülin Erdem, 1996. "A Dynamic Analysis of Market Structure Based on Panel Data," Marketing Science, INFORMS, vol. 15(4), pages 359-378.
    2. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
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    7. Benaissa Chidmi & Rigoberto A. Lopez, 2007. "Brand-Supermarket Demand for Breakfast Cereals and Retail Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 324-337.
    8. Alessie, Rob & Kapteyn, Arie, 1991. "Habit Formation, Interdependent References and Demographic Effects in the Almost Ideal Demand System," Economic Journal, Royal Economic Society, vol. 101(406), pages 404-19, May.
    9. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
    10. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, April.
    11. Kenkel, Donald S. & Manning, Willard, 1999. "Economic evaluation of nutrition policy: Or, there's no such thing as a free lunch," Food Policy, Elsevier, vol. 24(2-3), pages 145-162, May.
    12. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
    13. Pradeep K. Chintagunta, 1993. "Investigating Purchase Incidence, Brand Choice and Purchase Quantity Decisions of Households," Marketing Science, INFORMS, vol. 12(2), pages 184-208.
    14. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
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