Essay 2 - The Economics of Obesity
a) Discuss the role of discounting as potentially explaining the rise in obesity. What other
theories explain why individuals may rationally be over their ideal weight? Link your answer
to technological change.
b) Describe the main levers available to governments to intervene to prevent the rise in
obesity. What is the rationale for government intervention?
Discounting is the process of converting a value received in a future time period to an
equivalent value received immediately. In economic studies, we assume that individuals are
far-sighted and make rational decisions based on their preferences and their attitude
towards risk. We can measure their responsiveness to changes in risk and their overall
preferences using discount rates, the rate at which the individual discounts the future. This
means that those with a higher discount rate pay less attention to the future consequences
of their actions and prefer to focus on immediate gratification than those with lower discount
rates. Discount rates help us to understand why children make less sensible decisions.
Children and adolescents are likely to discount the future highly, due to a lack of ability to
perceive themselves as older and are often unable to take future consequences into
account. However, the role of discounting is limited when trying to explain trends over time.
In recent decades we have seen a rise in the prevalence of Obesity. Inconsistencies in the
use of discount rates have been noted as a potential reason to use them instead to explain
behavioural trends, such as the rise in Obesity, for instance, discount rates may have risen
over time. There are two types of discounting, in standard economic models we assume
individuals discount future benefits and costs, including health consequences, in an
exponential manner, meaning that the rate of discounting is constant across all delays, for all
points in the future, this is exponential discounting. Hyperbolic discounting, however, is
where individuals are not consistent in their choices, which leads to a pattern of time
inconsistency. When individuals are faced with short delays, individuals may choose a more
immediate, less rewarding pay-off, and for some long delays, individuals may stick to waiting
for the higher, more rewarding pay-off. The decision to consume consists of weighing up the
immediate benefits against future consequences, whether or not they consume food in that
moment depends on how short-sighted they are. An example of this is that someone aiming
to diet and loose weight in the late future, crave a snack, before making the decision to go to
the local shop, they consider the amount of time it will take to buy the snack, the delays of
traffic, finding the snack in the store, queuing up to pay and then driving back. The time
costs, delays, and price of the snack lead to the consumer deciding against buying the snack
and stick to their goal to lose weight and cut down consuming.
Hyperbolic discounting is really useful in explaining why obesity has reduced in recent years.
Technological change has reduced the price of food in recent years, particularly foods with
little nutritional value, and has reduced time costs and delays to purchasing these unhealthy
food options. Not only are supermarkets more efficient with self-serving checkouts, but now
consumers can get groceries and fast-food meals delivered to their homes for relatively
cheap prices. Prices have fallen due to the mass preparation of foods, and the increase in
the production of processed foods, whereas in the past cooking foods that are now readily
available would take more time and energy to prepare. Processed foods, snacks and ready
meals contain higher calories. As a result, there has been a rapid increase in the level of
obesity due to technological change. Data from Cutler et al (2003) showing changes in food
consumption in the late 1990s supports the notion that time costs of accessing and
consuming food has contributed to the increase in the intake of calories over time.
