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.
