Markets and Childhood Obesity

Abstract

In examining the childhood obesity epidemic from the perspective of economics, John Cawley looks at both possible causes and possible policy solutions that work through markets. The operation of markets, says Cawley, has contributed to the recent increase in childhood overweight in three main ways. First, the real price of food fell. In particular, energy-dense foods, such as those containing fats and sugars, became relatively cheaper than less energy-dense foods, such as fresh fruits and vegetables. Second, rising wages increased the "opportunity costs" of food preparation for college graduates, encouraging them to spend less time preparing meals. Third, technological changes created incentives to use prepackaged food rather than to prepare foods. Several economic rationales justify government intervention in markets to address these problems. First, because free markets generally under-provide information, the government may intervene to provide consumers with nutrition information they need. Second, because society bears the soaring costs of obesity, the government may intervene to lower the costs to taxpayers. Third, because children are not what economists call "rational consumers"—they cannot evaluate information critically and weigh the future consequences of their actions—the government may step in to help them make better choices. The government can easily disseminate information to consumers directly, but formulating policies to address the other two rationales is more difficult. In the absence of ideal policies to combat obesity, the government must turn to "second-best" policies. For example, it could protect children from advertisements for "junk food." It could implement taxes and subsidies that discourage the consumption of unhealthful foods or encourage physical activity. It could require schools to remove vending machines for soda and candy. From the economic perspective, policymakers should evaluate these options on the basis of cost-effectiveness studies. Researchers, however, have as yet undertaken few such studies of obesity-related policy options. Such analyses, once available, will help policymakers achieve the greatest benefit from a fixed budget.