More on Obesity and other Regulation

I share the skepticism as to whether self-control problems can be overcome with economic incentives. Yes, some people commit crimes even though they are threatened with punishments, and it may be that their discount rates are too high; the future penalty does not influence them as much as we – or even their future selves – would like. On the other hand, criminal behavior might better be traced to the uncertainty of being caught. In contrast, a voluntary or involuntary system of economic gains or losses with regard to weight can be made virtually certain. If contracts of the sort I have described for the workplace are entered into, participants will have agreed to be weighed on a monthly basis, and there will be no uncertainty about consequences.

The idea is therefore closer to a tax on cigarettes. We could reward non-smokers instead of taxing cigarettes, but the reward scheme is much more susceptible to false claims. How do we know whether someone has really not smoked during the last month? Cigarette taxes are, by the way, quite effective in reducing smoking. And a much higher tax than presently levied would do even more to control the development of new smokers. But taxation is much more difficult for obesity. Even if we could and would tax pounds or body mass indices, that is taxation after the fact. The self-control element suggests that we want to tax people in earlier time periods, as they contemplate an activity (like buying cigarettes), and not later, as they observe the outcomes (like developing lung cancer or gaining weight). We could tax fast food, particular fatty inputs, and so forth, but each of these will be grossly imprecise tools. Moreover, the self-control (or social utility) issues are different from those associated with smoking. A large percentage of people who smoked wished they did not, but a much smaller percentage of people who consumed a bag of potato chips yesterday wished they had not. My point is simply that just as smoking can be affected by economic incentives, so too can obesity rates. But taxes may be well suited in one area, while contracts (with more modest government involvement) do better in the other.

When I agree that we should be skeptical about economic incentives for this problem of self-control, I mean that we have little experience with the matter. Most illegal drugs are very expensive, and that high price seems to do better discouraging new users than addicted ones. If the per-pack tax on cigarettes were much higher than it is at present, a greater fraction of new smokers would undoubtedly be discouraged. Similarly, if our tax system made saving for retirement (arguably another self-control topic) yet more attractive, there would almost surely be more savings, and I do not mean simply a shift from one kind of savings to another. But if gaining weight meant that I would lose $20,000 a year rather than the $2,000 I used in my illustration in the earlier blog post, I would probably not enter into the agreement in the first place. I think I am too risk averse for that bet. That is a “problem” with an opt-in system in the interest of self-control.

Comments

[brentbrent]

While I generally agree that economic incentives, such as the cigarette tax, can influence personal behavior, I think that the incentives have to be mandatory to work well. If the self control program is voluntary, I do not see how significant systemic changes can be accomplished. The only ex ante incentives which seem viable to me are (1) taxing unhealthful food like we tax cigarettes (2) subsidising healthy foods and (3) subsidising exercise programs. Unlike cigarettes, which consist of a readily identifiable product that is easily taxed, how does one easily identify unhealthful foods? Do you go by fat content per serving? Calories per serving? Colesterol content per serving? A combination of weighted factors? How do you determine a serving? Are there multiple grades of "bad" and "good" foods, taxed or subsidised accordingly? Putting aside the political considerations inherent in such a system, it may be technically possible to create a workable system, but it certainly would contain far higher transaction costs than the cigarette tax example. In addition, certain "good" foods, such as pasta and rice can easily be overconsumed leading to weight gain, so it is not clear that by making "bad" food more expensive than "good" food, that the actual effect would be the desired effect. As to the subsidy for exercise, that is already happening in many, many communities. Parks with trails and exercise equipment are readily available as are low cost recreation centers and public television exercise shows. Other than a direct subsidy to patrons, I do not think it could be much easier to find opportunities to exercise.

[Marsha]

And, of course, healthy to one isn't healthy to another. There may be little reason for adults to drink full-fat milk, but it's the only kind of milk one is supposed to drink if under the age of 2. One can imagine all kinds of people who are supposed to eat foods that other people would be encouraged not to. Do we question at the checkout what the health status of the purchaser is, or require a doctor's note (or proof of parenthood) before determining the appropriate tax rate?

It seems that the health incentives made by insurance companies are a significantly better proxy - insurance companies stand to gain by subsidizing your gym membership, so they do it. The question is what the appropriate mechanism for doing that is where there's no insurance (and thus no business with an interest) involved.

[G.R. Hamm]

As a severely obese man and attorney I am very pleased to find your posts on obesity. I do not think the focus should be on weight, but instead use % body fat -- taking into account sex, age and race. I am not sure that financial incentives will matter, evidence already exist that by simply being obese/overweight that people will earn significantly less. Still I believe Brent's ex ante incentives may have marginal value. The fact is the poor can not easily afford whole grains or fresh veggies. Maybe food stamp program could subsidize these foods purchases at a higher level then calorie dense/nutrient poor foods. I don't have a solution, but I am please to see academia addressing obesity and seeking a solution for the national problem.

[Shefaly Yogendra]

To frame the problem of obesity as an economic or legal issue, rather than a multi-factorial health issue with grave social and economic consequences is an inadequate starting point in my view. The 'food' line of reasoning, for instance, could lead to asking of the question: why should this be treated as a matter of public policy or public health?

It is also important to pay attention to the 'who pays' question. In the UK, with our nationalised health system, incentives may or may not work, but there are plenty disincentives in the system and many economic issues of resource allocation to resolve. For instance, if surgical resources are limited, who should get cardiac surgery: an obese person, who according to some, may have brought it upon him/ herself? or a thin person with a genetic propensity to cardiac problems?

Paying attention to the causation is the first step towards the relevance of this discussion. Rest is just academic.

[Vic Bass]

While neither a nuritionist nor even very knowledgeable about economic incentives (though I did pass Prof. Posner's course on environmental regulation lo these many years ago at the law school), I am struck by the irony (raised by Mr. Hamm's comment) that the "bad foods" generally seem to cost more and the "good foods" (e.g, whole grains and fresh- or frozen or dried- vegetables) are actually relatively inexpensive, yet it appears that the poor, as well as society as a whole (perhaps more than society as a whole?) tend to eat more processed foods which are more expensive and dubious from the health standpoint. Perhaps the problem is that the cheap better foods tend to take more time to prepare, so maybe "cost" needs to have a labor component??

[management and investing]

Oh the delicious (fatty, greasy, sugary) irony. The West forces the third world to starve itself into oblivion, while the West itself eats itself into oblivion. God is one funny fucker. Up there in his chair, making us two opposites, two extremes. For an extra bit of mischief, he should make the penguins intelligent and just show up and start filming all the tubbies eating McFlurries and jumping in and out of diabetic comas. March of the Humans. Look at us; we’re fucking brilliant.