In many countries of the world, consumers choose their health insurance coverage from a large menu of often complex options supplied by private insurance companies. Economic benefits of the wide choice of health insurance options depend on the extent to which the consumers are active, well informed, and sophisticated decision makers capable of choosing plans that are well-suited to their individual circumstances. There are many possible ways how consumers’ actual decision making in the health insurance domain can depart from the standard model of health insurance demand of a rational risk-averse consumer. For example, consumers can have inaccurate subjective beliefs about characteristics of alternative plans in their choice set or about the distribution of health expenditure risk because of cognitive or informational constraints; or they can prefer to rely on heuristics when the plan choice problem features a large number of options with complex cost-sharing design. The second decade of the 21st century has seen a burgeoning number of studies assessing the quality of consumer choices of health insurance, both in the lab and in the field, and financial and welfare consequences of poor choices in this context. These studies demonstrate that consumers often find it difficult to make efficient choices of private health insurance due to reasons such as inertia, misinformation, and the lack of basic insurance literacy. These findings challenge the conventional rationality assumptions of the standard economic model of insurance choice and call for policies that can enhance the quality of consumer choices in the health insurance domain.
Frederick van der Ploeg
The social rate of discount is a crucial driver of the social cost of carbon (SCC), that is, the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits market. The social discount rate is lower and the SCC higher if policy makers are more patient and if future generations are less affluent and policy makers care about intergenerational inequality. Uncertainty about the future rate of growth of the economy and emissions and the risk of macroeconomic disasters (tail risks) also depress the social discount rate and boost the SCC provided intergenerational inequality aversion is high. Various reasons (e.g., autocorrelation in the economic growth rate or the idea that a decreasing certainty-equivalent discount rate results from a discount rate with a distribution that is constant over time) are discussed for why the social discount rate is likely to decline over time. A declining social discount rate also emerges if account is taken from the relative price effects resulting from different growth rates for ecosystem services and of labor in efficiency units. The market-based asset pricing approach to carbon pricing is contrasted with a more ethical approach to policy making. Some suggestions for further research are offered.
The rise in obesity and other food-related chronic diseases has prompted public-health officials of local communities, national governments, and international institutions to pay attention to the regulation of food supply and consumer behavior. A wide range of policy interventions has been proposed and tested since the early 21st century in various countries. The most prominent are food taxation, health education, nutritional labeling, behavioral interventions at point-of-decision, advertising, and regulations of food quality and trade. While the standard neoclassical approach to consumer rationality provides limited arguments in favor of public regulations, the recent development of behavioral economics research extends the scope of regulation to many marketing practices of the food industry. In addition, behavioral economics provides arguments in favor of taxation, easy-to-use front-of-pack labels, and the use of nudges for altering consumer choices. A selective but careful review of the empirical literature on taxation, labeling, and nudges suggests that a policy mixing these tools may produce some health benefits. More specifically, soft-drink taxation, front-of-pack labeling policies, regulations of marketing practices, and eating nudges based on affect or behavior manipulations are often effective methods for reducing unhealthy eating. The economic research faces important challenges. First, the lack of a proper control group and exogenous sources of variations in policy variables make evaluation very difficult. Identification is challenging as well, with data covering short time periods over which markets are observed around slowly moving equilibria. In addition, truly exogenous supply or demand shocks are rare events. Second, structural models of consumer choices cannot provide accurate assessment of the welfare benefits of public policies because they consider perfectly rational agents and often ignore the dynamic aspects of food decisions, especially consumer concerns over health. Being able to obtain better welfare evaluation of policies is a priority. Third, there is a lack of research on the food industry response to public policies. Some studies implement empirical industrial organization models to infer the industry strategic reactions from market data. A fruitful avenue is to extend this approach to analyze other key dimensions of industrial strategies, especially decisions regarding the nutritional quality of food. Finally, the implementation of nutritional policies yields systemic consequences that may be underestimated. They give rise to conflicts between public health and trade objectives and alter the business models of the food sector. This may greatly limit the external validity of ex-ante empirical approaches. Future works may benefit from household-, firm-, and product-level data collected in rapidly developing economies where food markets are characterized by rapid transitions, the supply is often more volatile, and exogenous shocks occur more frequently.
Fabrice Etilé and Lisa Oberlander
In the last several decades obesity rates have risen significantly. In 2014, 10.8% and 14.9% of the world’s men and women, respectively, were obese as compared with 3.2% and 6.4% in 1975. The obesity “epidemic” has spread from high-income countries to emerging and developing ones in every region of the world. The rising obesity rates are essentially explained by a rise in total calorie intake associated with long-term global changes in the food supply. Food has become more abundant, available, and cheaper, but food affluence is associated with profound changes in the nutritional quality of supply. While calories have become richer in fats, sugar, and sodium, they are now lower in fiber. The nutrition transition from starvation to abundance and high-fat/sugar/salt food is thus accompanied by an epidemiological transition from infectious diseases and premature death to chronic diseases and longer lives. Food-related chronic diseases have important economic consequences in terms of human capital and medical care costs borne by public and private insurances and health systems. Technological innovations, trade globalization, and retailing expansion are associated with these substantial changes in the quantity and quality of food supply and diet in developed as well as in emerging and rapidly growing economies. Food variety has significantly increased due to innovations in the food production process. Raw food is broken down to obtain elementary substances that are subsequently assembled for producing final food products. This new approach, as well as improvements in cold chain and packaging, has contributed to a globalization of food chains and spurred an increase of trade in food products, which, jointly with foreign direct investments, alters the domestic food supply. Finally, technological advancements have also favored the emergence of large supermarkets and retailers, which have transformed the industrial organization of consumer markets. How do these developments affect population diets and diet-related diseases? Identifying the contribution of supply factors to long-term changes in diet and obesity is important because it can help to design innovative, effective, and evidence-based policies, such as regulations on trade, retailing, and quality or incentives for product reformulation. Yet this requires a correct evaluation of the importance and causal effects of supply-side factors on the obesity pandemic. Among others, the economic literature analyzes the effect of changes in food prices, food availability, trade, and marketing on the nutrition and epidemiological transitions. There is a lack of causal robust evidence on their long-term effects. The empirical identification of causal effects is de facto challenging because the dynamics of food supply is partly driven by demand-side factors and dynamics, like a growing female labor force, habit formation, and the social dynamics of preferences. There are several important limitations to the literature from the early 21st century. Existing studies cover mostly well-developed countries, use static economic and econometric specifications, and employ data that cover short periods of time unmarked by profound shifts in food supply. In contrast, empirical research on the long-term dynamics of consumer behavior is much more limited, and comparative studies across diverse cultural and institutional backgrounds are almost nonexistent. Studies on consumers in emerging countries could exploit the rapid time changes and large spatial heterogeneity, both to identify the causal impacts of shocks on supply factors and to document how local culture and institutions shape diet and nutritional outcomes.