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Cash Incentives and Unhealthy Food Consumption

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  • Javier Rivas

    ()

  • Miguel Flores

    ()

Abstract

The costs associated with unhealthy food consumption are not only paid by those suffering from overweight but by all members of society in terms of higher costs for social security systems. With this in mind, we study the effectiveness of a tax, a subsidy and cash incentives in reducing unhealthy food consumption. Using an inter-temporal rational choice model with habit, we calibrate and simulate the effect of those policies to US and UK data. Our findings suggest that cash incentives may be the most effective policy in reducing unhealthy food consumption yet it can be the most costly one. Taxes are relatively ineffective in reducing unhealthy food consumption. Subsidies have the best balance between effectiveness and monetary benefits to the society.

Suggested Citation

  • Javier Rivas & Miguel Flores, 2011. "Cash Incentives and Unhealthy Food Consumption," Discussion Papers in Economics 11/47, Department of Economics, University of Leicester, revised Jan 2012.
  • Handle: RePEc:lec:leecon:11/47
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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp11-47.pdf
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    References listed on IDEAS

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    1. Fletcher, Jason M. & Frisvold, David E. & Tefft, Nathan, 2010. "The effects of soft drink taxes on child and adolescent consumption and weight outcomes," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 967-974, December.
    2. Yaniv, Gideon & Rosin, Odelia & Tobol, Yossef, 2009. "Junk-food, home cooking, physical activity and obesity: The effect of the fat tax and the thin subsidy," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 823-830, June.
    3. Levy, Amnon, 2002. "Rational eating: can it lead to overweightness or underweightness?," Journal of Health Economics, Elsevier, vol. 21(5), pages 887-899, September.
    4. Inas Rashad & Michael Grossman & Shin-Yi Chou, 2006. "The Super Size of America: An Economic Estimation of Body Mass Index and Obesity in Adults," Eastern Economic Journal, Eastern Economic Association, vol. 32(1), pages 133-148, Winter.
    5. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
    6. Dragone, Davide & Savorelli, Luca, 2012. "Thinness and obesity: A model of food consumption, health concerns, and social pressure," Journal of Health Economics, Elsevier, vol. 31(1), pages 243-256.
    7. Rajeev Goel, 2006. "Obesity: An economic and financial perspective," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(3), pages 317-324, September.
    8. Yaniv, Gideon, 2002. "Non-adherence to a low-fat diet: an economic perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 93-104, May.
    9. 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.
    10. Gruber, Jonathan & Frakes, Michael, 2006. "Does falling smoking lead to rising obesity?," Journal of Health Economics, Elsevier, vol. 25(2), pages 183-197, March.
    11. repec:aph:ajpbhl:2000:90:6:854-857_7 is not listed on IDEAS
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    More about this item

    Keywords

    Habit; Junk Food; Overweight; Public Policy; Rational Addiction;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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