Is There a Role for Government in Reducing the Prevalence of Overweight and Obesity?

Without evidence of market failure, there is the danger that any government policy, including food policy to curtail overweight and obesity, could cause more harm than good. In this paper, we examine how the evidence stacks up for the obesity problem. We investigate whether failure in food markets may help explain the growth of overweight and obesity in this country.¹

Is There Evidence that Obesity and Overweight are the Result of Market Failure?

Do Markets Supply the Types of Foods Desired by Consumers?

The wide variety of food products on grocery store shelves reflects the willingness and ability of the industry to adapt to consumer preferences—even short-lived or faddish ones. For example, low-fat and low-carb diets have both influenced the mix of foods. In 1996, at the height of the low-fat movement, manufacturers introduced 3,434 new food products that were labeled "low fat" or "no fat." Between 1987 and the end of September 2004, manufacturers introduced 35,272 such products (Figure 1). In 2003, 700 "low-carb" or "no-carb" products hit the market; through the end of September of 2004, 2,753 such products followed.

Competition to attract and keep customers extends to the fast-food and restaurant industries. Large portions, boasting good value for the buck, and high-fat (tasty) foods are one way to draw customers. "Healthy" foods, such as salads topped with broiled chicken breast, bunless burgers, low-carb pizza, low-fat yogurt parfaits, and heart-healthy menu options, are another.

In fact, the urban landscape is dotted with specialty grocery stores that attest to the willingness of markets to supply whatever consumers want, even when those consumers have low incomes. Asian, Caribbean, Indian, and South American stores all dish up a variety of processed foods, fresh fruits, and vegetables for their customers, many of whom are low-income recent immigrants. Perhaps one of the most extreme examples of how far retailers will go to tailor their services to the needs of low-income consumers is the emergence of "WIC-only" stores, which cater exclusively to participants in the Special Supplemental Nutrition Program for Women, Infants, and Children.

Overall, the evidence does not seem to support the conclusion that industry is unwilling or unable to supply the types of foods that consumers desire. We conclude that it is very unlikely that unhealthy food consumption patterns stem from this sort of market failure.

Do Consumers Have Enough Information to Make Informed Food Choices?

The sheer volume of media coverage devoted to diet and weight makes it difficult to believe that many Americans are not conscious of the relationship between a healthful diet and obesity. Even a consumer who managed to avoid the popular media could not escape the onslaught of information. Physicians, government education programs, nutrition labels, and product health claims all provide consumers with information on what constitutes a healthy diet and weight. Mirrors, bathroom scales, and belt notches provide constant updates, as do unsolicited comments about our changing weight status from friends or relatives.

Survey results indicate that this barrage of information has informed Americans. Results from the US Department of Agriculture's (USDA) Diet and Health Knowledge Survey indicate that a majority of American consumers have basic nutrition knowledge. Survey results indicate that most people can discriminate among foods on the basis of fat, fiber, and cholesterol. Most are aware of health problems related to nutrients (Variyam & Blaylock, 1998).

Though a lack of information does not seem to characterize most food markets, there is, nevertheless, evidence of some information blackout zones. One such zone involves public perceptions of appropriate weight. Kuchler and Variyam (2002) found that 41% of individuals whom health professionals would classify as overweight (but not obese) did not perceive themselves to be overweight. Among individuals whom professionals would classify as obese, 13% said that their weight is about right or even too low. Furthermore, the highest frequency of these "doubters" is found in the ranks of those who scored lowest in diet and health knowledge.

One of the most widely discussed information blackout zones is for food sold at restaurants and fast-food establishments. Although the 1994 National Labeling and Education Act requires that manufacturers include a nutrition information panel on the label of almost all packaged foods, it does not require any similar disclosure for foods purchased at restaurants—food away from home (FAFH).² This information requirement gap may be increasingly important as a source of information failure. Not only are Americans consuming large amounts of FAFH, but the nutritional content of FAFH tends to be less healthy than foods prepared at home (Guthrie, Lin, & Frazão, 2002).

The negative characteristics of FAFH do not necessarily indicate that information fails to reach consumers. As long as consumers are just a little cynical, markets will work to disclose information on even negative product characteristics. For example, a sandwich restaurant advertising "low-fat, low-carb" menu options may cast into doubt the fat and carbohydrate content of the sandwiches in a competing restaurant that does not advertise such claims. This competitive disclosure drives firms to make explicit claims for all positive aspects of their products and allows consumers to make appropriate inferences about foods without claims.

A possible limitation to the success of competitive disclosure in FAFH markets is the fact that negative attributes are widely shared by producers in the market. Restaurants offer foods high in fat and calories because these foods tend to taste good. No producer has an incentive to disclose information about fat and calories because no competitive advantage can be gained by doing so; it is difficult for any producer to reduce fat and calories without compromising taste, given the current state of food technology. As a result, there may be little advertised nutritional information against which to contrast and compare any particular food option.

Another possible limitation to nutrition disclosure in markets for FAFH is the complexity of nutrition information (Jessup, 2001). Though savvy consumers may be able to infer that a dessert that does not have a "heart healthy" logo next to it on the menu has more cholesterol or saturated fat than one with the logo, they cannot infer any information about sugar or calorie content. Inference is just not adequate for accurately disclosing all of the nutrients that may be of interest to consumers.

The evidence is mixed on whether these limitations to nutrition disclosure in FAFH are hindering the flow of information and the ability of consumers to make informed decisions about FAFH choices. On the one hand, most consumers suspect that food served at fast-food restaurants is not the healthiest. A 2003 Gallup Poll survey found that two thirds of consumers thought that most food sold at fast-food restaurants was not good for them (Saad, 2003). On the other hand, consumers may not be able to gauge precisely the nutritional content of FAFH. A 1996 survey conducted by New York University and the Center for Science in the Public Interest found that trained dietitians underestimated the calorie content of five restaurant meals by an average of 37% and the fat content by 49% (Backstrand, Wootan, Young, & Hurley, 1997).

Are Individual Food-Consumption Choices Socially Optimal?

The fact that a large part of the health-care bill from overweight and obesity is eventually footed by taxpayers—not private insurance providers—may further misalign social and private costs. Finkelstein, Fiebelkorn, and Wang (2004) found that Medicare and Medicaid pay for at least half of obesity-attributable medical expenses. This means that what would otherwise be a matter of personal choice (and responsibility) has become a matter of concern for all taxpayers. Though simply transferring the bill for health care to the public sector does not guarantee inefficiencies and declining diet quality, it does guarantee controversy when the bill is large. In addition, if diet quality does decline and taxpayers foot an ever-growing bill for overweight and obesity, their financial interest in the health behavior of others is also bound to grow.

Tapping the public purse for health-care expenses does not by itself demonstrate an efficiency problem. If it did, there would be no end to the number of risky behaviors that we might want to discourage and no end to the public sector's control over individual choices. Many activities, including skiing, unprotected sex, and home repairs involving power tools, raise health-care expenses. Eating raw oysters is clearly a more risky proposition than eating many other foods. An efficiency loss from having the public sector pay health-care expenses arises if individuals choose unwisely because of the health-care subsidy. In this case, it may be the public sector and not the market that has failed.

Evidence of Market Failure is not Evidence of Cost-Effective Policy

However, even the best-targeted policy tools may not pass a cost-benefit test. Moreover, even if they do, more fundamental causes of weight-gain trends—causes that have nothing to do with market failure—may remain. For example, neither public education nor revamped health insurance will fundamentally alter the shift in technology-induced relative prices that may underlie the growth in overweight and obesity. Technological change has created a largely sedentary workforce (Philipson & Posner, 2003), meaning that workers have to exercise more outside work or reduce their calorie intake to maintain weight. In addition, improvements in food-storage technology (e.g., frozen microwavable meals) have reduced the time cost of preparing meals (Cutler, Glaeser, & Shapiro, 2003), encouraging consumers to eat. Medical technology in the treatment of obesity-related illnesses has also improved, turning some hopeless situations into chronic illnesses and reducing the health costs of obesity. If medical advances continue to reduce the health consequences of obesity, the incentive to maintain a healthy weight will continue to diminish, maybe one day becoming a function only of vanity.

Notes

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