The food industry is under transformation due to some important changes in consumer preferences. With a trend towards a healthier lifestyle, food quality, nutrition, and safety are increasingly important to consumers today. There is an increasing demand for more information about the nutritional content of food, for food considered healthy and health-enhancing. However, at the same time, obesity and diabetes rates continue to rise and so do health care costs as a result. There is significant interest in developing and implementing policies to address these problems and promote healthy eating. In this Hatch project, we examine the effects of two public policies aimed at improving consumer health outcomes. More specifically, we propose estimating the welfare effects of a policy proposal that bans use of partially-hydrogenated oil in food products leading to a ban on trans fat. Partially hydrogenated oil as a source of trans fat, is a primary cause of deaths related to heart attack and obesity in the United States. However, use of partially-hydrogenated oil as an ingredient, even in small amounts, significantly decreases cost of production by providing longer storability and shelf stability. To evaluate welfare effects of this ban, taking into account the demand- and supply-side responses, we use the microwaveable popcorn market as a case study, use Nielsen retail scanner datasets, and estimate a consumer demand model for microwaveable popcorns. We recover consumer preferences as well as marginal cost of production. We propose estimating counterfactuals by allowing firms to endogenously choose prices as well as product portfolios. Using our model, we can simulate the expected product offerings in the market as well as the prices of those products, hence we can compute the total gain in welfare from both before and after the ban is imposed.
The second project examines the impact of the U.S. Food and Drug Administration (FDA) menu labeling rule. As of May 7, 2018, all chain restaurants with 20 or more locations are required to post calorie information on menus and menu boards. This rule has been controversial and restaurants' lobbyists have been successful at getting it postponed twice. Critics argued that the law is not flexible enough for pizza restaurants and food sellers, such as supermarkets, convenience stores and bakeries, that are not restaurants (Bomkamp, 2017). However, public health advocates hope that calorie posting at restaurants will help consumers make healthier food choices by improving consumer awareness of calories consumed. This is important given the recent health trends. In the United States, the rate of obesity is rising as well as the proportion of calorie intake coming from food consumed away from home. Between 1977 and 2008, Americans increased their away-from-home caloric intake from 17.7 percent to 31.6 percent (Lin and Guthrie, 2012). This trend has continued and in 2017, consumers were spending 50.6% of total food expenditures away from home (Agnese, 2017). The literature shows a direct link between obesity and food away from home (e.g., Todd, Mancino, and Lin, 2010). We propose examining the supply-side effects of the menu labeling rule, i.e., the effect on restaurants' decisions. Examining the supply-side effects of the law is important as efforts by restaurants to decrease calorie content of menu items may contribute to the fight against obesity. However, strategic decisions by restaurants may have a negative impact on health if a reduction in fat content is met by an increase in sodium for example, or if restaurant promotions target high-calorie items.