Equilibrium Effects of Food Labeling Policies

Barahona, Nano and Otero, Cristobal and Otero, Sebastian (2022): Equilibrium Effects of Food Labeling Policies.

Abstract

We study a regulation in Chile that mandates warning labels on products whose sugar or caloric concentration exceeds certain thresholds. We show that consumers substitute from labeled to unlabeled products—a pattern mostly driven by products that consumers mistakenly believe to be healthy. On the supply side, we find substantial reformulation of products and bunching at the thresholds. We develop and estimate an equilibrium model of demand for food and firms’ pricing and nutritional choices. We find that food labels increase consumer welfare by 1.6% of total expenditure, and that these effects are enhanced by firms’ responses. We then use the model to study alternative policy designs. Under optimal policy thresholds, food labels and sugar taxes generate similar gains in consumer welfare, but food labels benefit the poor relatively more

• Item Type: MPRA Paper
• Language: English
• Keywords: Food labels, equilibrium effects, misinformation, sugar taxes.
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; I - Health, Education, and Welfare > I1 - Health > I12 - Health Behavior; I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce

References

Abaluck, J. (2011). What would we eat if we knew more: The implications of a large-scale change in nutrition labeling. Working Paper.

Abaluck, J. and J. Gruber (2011). Choice inconsistencies among the elderly: Evidence from plan choice in the medicare part d program. American Economic Review 101(4), 1180–1210.

Ackerberg, D. A. and G. S. Crawford (2009). Estimating price elasticities in differentiated product demand models with endogenous characteristics. Working Paper.

Aguilar, A., E. Gutierrez, and E. Seira (2021). The effectiveness of sin food taxes: evidence from mexico. Journal of Health Economics 77, 102455.

Alé-Chilet, J. and S. Moshary (2022). Beyond consumer switching: Supply responses to food packaging and advertising regulations. Marketing Science, Forthcoming.

Allais, O., F. Etil ́e, and S. Lecocq (2015). Mandatory labels, taxes and market forces: An empirical evaluation of fat policies. Journal of Health Economics 43, 27–44.

Allcott, H. (2013). The welfare effects of misperceived product costs: Data and calibrations from the automobile market. American Economic Journal: Economic Policy 5(3), 30–66.

Allcott, H., R. Diamond, J.-P. Dub ́e, J. Handbury, I. Rahkovsky, and M. Schnell (2019). Food deserts and the causes of nutritional inequality. The Quarterly Journal of Economics 134(4), 1793–1844.

Allcott, H. and C. Knittel (2019). Are consumers poorly informed about fuel economy? evidence from two experiments. American Economic Journal: Economic Policy 11(1), 1–37.

Allcott, H., B. B. Lockwood, and D. Taubinsky (2019a). Regressive sin taxes, with an application to the optimal soda tax. The Quarterly Journal of Economics 134(3), 1557–1626.

Allcott, H., B. B. Lockwood, and D. Taubinsky (2019b). Should we tax sugar-sweetened beverages? an overview of theory and evidence. Journal of Economic Perspectives 33(3), 202–27.

Araya, S., A. Elberg, C. Noton, and D. Schwartz (2022). Identifying food labeling effects on consumer behavior. Marketing Science, forthcoming.

Backus, M., C. Conlon, and M. Sinkinson (2021). Common ownership and competition in the ready-to-eat cereal industry. Working Paper.

Barahona, N., J. Kim, C. Otero, and S. Otero (2022). On the design of food labeling policies. Working Paper.

Bernheim, B. D. and D. Taubinsky (2018). Behavioral public economics. In: Handbook of Behavioral Economics—Foundations and Applications 1 (5), 381–516.

Berry, S., J. Levinsohn, and A. Pakes (1995). Automobile Prices in Market Equilibrium. Econometrica 63(4), 841–890.

Bollinger, B., P. Leslie, and A. Sorensen (2011). Calorie Posting in Chain Restaurants. American Economic Journal: Economic Policy 3, 91–128.

Correa, T., M. Reyes, L. S. Taillie, C. Corvala ́n, and F. R. Dillman Carpentier (2020). Food advertising on television before and after a national unhealthy food marketing regulation in chile, 2016–2017. American Journal of Public Health 110(7), 1054– 1059.

Draganska, M., M. Mazzeo, and K. Seim (2009). Beyond plain vanilla: Modeling joint product assortment and pricing decisions. QME 7(2), 105–146.

Dranove, D. and G. Z. Jin (2010). Quality disclosure and certification: Theory and practice. Journal of Economic Literature 48 (4), 935–63.

Dranove, D., D. Kessler, M. McClellan, and M. Satterthwaite (2003). Is more information better? the effects of report cards on health care providers. Journal of Political Economy 111(3), 555–588.

Dubois, P., R. Griffith, and M. O’Connell (2017, 04). The Effects of Banning Adver- tising in Junk Food Markets. The Review of Economic Studies 85(1), 396–436.

Dubois, P., R. Griffith, and M. O’Connell (2020, November). How well targeted are soda taxes? American Economic Review 110(11), 3661–3704.

Falbe, J., N. Rojas, A. H. Grummon, and K. A. Madsen (2015). Higher retail prices of sugar-sweetened beverages 3 months after implementation of an excise tax in Berkeley, California. American journal of public health 105(11), 2194–2201.

Falbe, J., H. R. Thompson, C. M. Becker, N. Rojas, C. E. McCulloch, and K. A. Madsen (2016). Impact of the Berkeley excise tax on sugar-sweetened beverage consumption. American journal of public health 106 (10), 1865–1871.

Fan, Y. (2013). Ownership consolidation and product characteristics: A study of the US daily newspaper market. American Economic Review 103(5), 1598–1628.

Finkelstein, E. A., K. L. Strombotne, N. L. Chan, and J. Krieger (2011). Mandatory menu labeling in one fast-food chain in king county, Washington. American Journal of Preventive Medicine 40(2), 122–127.

FNE (2014). Denuncia contra Carozzi por conductas anticompetitivas. Technical report, Fiscalía Nacional Econ ́omica, Santiago, Chile.

Greenstone, M., P. Oyer, and A. Vissing-Jorgensen (2006). Mandated disclosure, stock returns, and the 1964 securities acts amendments. The Quarterly Journal of Economics 121(2), 399–460.

Handel, B. R. and J. T. Kolstad (2015, August). Health insurance for ”humans”: Information frictions, plan choice, and consumer welfare. American Economic Review 105(8), 2449–2500.

Hastings, J. S. and J. M. Weinstein (2008). Information, school choice, and academic achievement: Evidence from two experiments. The Quarterly journal of Economics 123(4), 1373–1414.

Hendel, I. and A. Nevo (2006). Measuring the implications of sales and consumer inventory behavior. Econometrica 74(6), 1637–1673.

Hendel, I. and A. Nevo (2006). Sales and consumer inventory. The RAND Journal of Economics 37(3), 543–561.

Hendren, N. and B. Sprung-Keyser (2020). A unified welfare analysis of government policies. The Quarterly Journal of Economics 135(3), 1209–1318.

Houde, S. (2018). The incidence of coarse certification: Evidence from the energy star program. Working Paper.

Ippolito, P. M. and A. D. Mathios (1990). Information, advertising and health choices: A study of the cereal market. The RAND Journal of Economics 21 (3), 459–480.

Ippolito, P. M. and A. D. Mathios (1995). Information and advertising: The case of fat consumption in the united states. American Economic Review 85 (2), 91–95.

Jin, G. Z. and P. Leslie (2003). The effect of information on product quality: Evidence from restaurant hygiene grade cards. The Quarterly Journal of Economics 118 (2), 409–451.

Kiesel, K. and S. B. Villas-Boas (2013). Can information costs affect consumer choice? Nutritional labels in a supermarket experiment. International Journal of Industrial Organization 31(2), 153–163.

Lee, M. M., J. Falbe, D. Schillinger, S. Basu, C. E. McCulloch, and K. A. Madsen (2019). Sugar-sweetened beverage consumption 3 years after the berkeley, california, sugar-sweetened beverage tax. American Journal of Public Health 109(4), 637–639.

Lim, J. H., R. Rishika, R. Janakiraman, and P. Kannan (2020). Competitive effects of front-of-package nutrition labeling adoption on nutritional quality: Evidence from facts up front–style labels. Journal of Marketing 84(6), 3–21.

Michel, C. and S. Weiergraeber (2018). Estimating industry conduct in differentiated products markets. Working Paper.

Moorman, C., R. Ferraro, and J. Huber (2012). Unintended nutrition consequences: Firm responses to the nutrition labeling and education act. Marketing Science 31(5), 717–737.

Nevo, A. (2001). Measuring Market Power in the Ready-to-Eat Cereal Industry. Econometrica 69(2), 307–342.

Pachali, M. J., M. J. Kotschedoff, A. van Lin, B. J. Bronnenberg, and E. van Herpen (2022). How do nutritional warning labels affect prices? Working Paper.

Ravaioli, S. (2021). Coarse and precise information in food labeling. Working Paper.

Roe, B. E., M. F. Teisl, and C. R. Deans (2014). The economics of voluntary versus mandatory labels. Annual Review of Resources Economics 6(1), 407–427.

Silver, L. D., S. W. Ng, S. Ryan-Ibarra, L. S. Taillie, M. Induni, D. R. Miles, J. M. Poti, and B. M. Popkin (2017). Changes in prices, sales, consumer spending, and beverage consumption one year after a tax on sugar-sweetened beverages in berkeley, california, us: A before-and-after study. PLoS Medicine 14(4), e1002283.

Taillie, L. S., M. Reyes, M. A. Colchero, B. Popkin, and C. Corvala ́n (2020). An evaluation of chile’s law of food labeling and advertising on sugar-sweetened beverage purchases from 2015 to 2017: A before-and-after study. PLoS Medicine 17(2), e1003015.

Taylor, R., S. Kaplan, S. B. Villas-Boas, and K. Jung (2019). Soda wars: Effect of a soda tax election on soda purchases. Economic Inquiry 57(3), 1480–1496.

Vatter, B. (2021). Quality disclosure and regulation: Scoring design in medicare advantage. Working Paper.

Villas-Boas, S. B., K. Kiesel, J. P. Berning, H. H. Chouinard, and J. J. McCluskey (2020). Consumer and strategic firm response to nutrition shelf labels. American Journal of Agricultural Economics 102(2), 458–479.

WHO (2018). Factsheet No. 311. World Health Organization.

Wisdom, J., J. S. Downs, and G. Loewenstein (2010). Promoting healthy choices: Information versus convenience. American Economic Journal: Applied Economics 2(2), 164–178.

Wollmann, T. G. (2018, June). Trucks without bailouts: Equilibrium product characteristics for commercial vehicles. American Economic Review 108 (6), 1364–1406.

Woodward, S. E. and R. E. Hall (2012). Diagnosing consumer confusion and suboptimal shopping effort: Theory and mortgage-market evidence. American Economic Review 102(7), 3249–76.

Zhu, C., R. A. Lopez, and X. Liu (2015). Information Cost and Consumer Choices of Healthy Foods. American Journal of Agricultural Economics 98(1), 41–53.