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Report

Teaser, summary, work performed and final results

Periodic Reporting for period 2 - FOODHABITS (Empirical evidence on the formation of habits, self-control and non-separabilities in food choices)

Teaser

Summary

Governments around the world regard obesity, and particularly child obesity, as a major policy concern. Our research aims to help us better understand how to design effective policies that address this issue. Central to our research are two key considerations. First, many policies are targeted at junk food markets, which tend to be dominated by a small number of firms that heavily advertise their products â€“ this means accounting for how firms may respond to policies is crucial. Second, the costs of poor nutrition are likely to vary across people, and policies will vary in their effectiveness depending on how well they target those for whom costs are highest.

Work performed

Governments around the world regard obesity, and particularly child obesity, as a major policy concern. Our research aims to help us better understand how to design effective policies that address this issue.

Restrictions to advertising of junk foods is one policy option. In Dubois, Griffith and O\'Connell (2018) we study the impacts of banning advertising in the U.K. market for potato chips. We show that the effects of advertising on product level demands vary across products and consumers. Advertising of one brand may steal market share from some rival brands, while boosting demand of others; advertising also acts to change consumersâ€™ willingness to pay for more healthy products. We simulate the effects of banning advertising, taking account of consumer demand and firm strategic pricing response. We show that banning advertising, leads to a reduction in the quantity of potato chips sold. However, one effect of advertising on demand is to lower consumer sensitivity to price, reducing the slope of market demands. Therefore, the ban acts to make the market more competitive and firms respond to the ban by, on average, lowering their prices. Lower prices lead to an offsetting increase in demand, meaning, in equilibrium, that the advertising ban lowers the quantity of potato chips sold by around 10%.

Another popular policy is corrective taxation (e.g. on sugary drinks or alcohol) to reduce excess consumption. In Griffith, Oâ€™Connell, Smith (2019) we apply insights from the theoretical literature to a differentiated product setting to show how the optimal design of alcohol taxes depends on the correlation of consumersâ€™ product level demands with the social costs that arise from their excess alcohol consumption. We study the empirical importance of this using micro data on the UK market for alcohol, and show that the government can implement better targeted policy by setting higher tax rates on products disproportionately purchased by heavy drinkers.

In ongoing work (Dubois, Griffith and O\'Connell, 2019) we apply related ideas to study taxes on sugary drinks. We study whether taxes are effective at lowering sugar consumption for those individuals that policy has targeted, and for whom the consequences of high intake are thought to be most severe, namely young people and those who consume a lot of sugar. We study consumption on-the-go â€“ which accounts for around half of sugar from soft drinks â€“ using novel data on British individuals, including teenagers and young adults. Much of the existing literature focuses only on purchases brought into the home, with children and young adults typically not identified as a distinct group of decision makers within household level data. We estimate consumer choice in the non-alcoholic drinks market and simulate the introduction of a soda tax, accounting for how firmsâ€™ pass-through the tax to prices. We show that soda taxes do not do a good job at targeting individuals from households with high total dietary sugar, however they are relatively effective at targeting young consumers and those from low income households.

In other work (Griffith, Nesheim and O\'Connell, 2018) we show how flexibly modelling consumer demand is important for modelling tax pass through. We compare the effects of a specific and ad valorem tax in reducing consumption of saturated fat. We find that the specific tax more directly targets saturated fat content than the ad valorem tax and has higher pass-through to consumer prices.

The main justification for policy interventions to reduce obesity is that individuals fail to completely account for costs resulting from their food choices. To design policy well it is important to know something about the size of these costs and how they vary across individuals and within individual over time or consumption occasions. A prominent example of such costs are self-control problems that lead individuals to make choices that they later regret. Our research has provided s

Final results

We have developed and applied a number of novel methods.

We have made advances in relaxing distributional assumptions typically used in discrete choice models that have important consequences for economic questions of interest.

In Dubois, Griffith and O\'Connell (2019) we specify consumer preferences as individual level parameters that we estimate. This departs from the standard approach to modelling consumer preference heterogeneity in discrete choice models, where preferences are treated as random effects drawn from a known distribution. The main advantage of our approach is that we do not need to make assumptions restricting or ruling out correlation in consumer level preferences with consumer attributes (including purchase behaviour for other goods). We are therefore able to directly relate individual level predictions of the impact of the tax to consumer characteristics in a flexible way. This means that we can assess precisely which individuals respond to the tax and on whom the economic burden of the tax falls most heavily.

In Griffith, Nesheim and O\'Connell (2018) we relax the assumption typically imposed in discrete choice demand models that utility is linear in consumption of the outside good.
This imposes independence between the total resources a consumer allocates to a set of separable goods and demand for those goods (i.e. it imposes no â€œincome effectsâ€) and places restrictions on the curvature of individual and market demand, and hence on predictions of pass-through of cost shocks and taxes to consumer prices. Nevertheless, it is commonly believed that for small budget share product categories the restriction that the marginal utility of expenditure is constant is a reasonable approximation. We show that flexibly modelling the impact of total expenditure on demand in a discrete choice demand model can be important, in particular for evaluating the distributional implications of a policy reform. In particular, for a small budget share good, we find that the marginal utility of expenditure is falling convexly in the householdâ€™s grocery budget and this results in large differences in the welfare consequence of tax for household of different incomes.

In Cherchye et al (2017) we use insights from the literature on household economics, and in particular the collective approach to choice behaviour, and apply them to individual self-control problems. We develop an empirically tractable framework that allows us to account for the heterogeneous food choice behaviour of individuals and that provides a structural interpretation of the within-person time-series fluctuations in diet quality. The framework interprets this within person variation in choice behaviour through the lens of multi-selves models influential in the theoretical literature on behavioural economics.