The Economics of Obesity

This chapter provides an overview of the levels, trends, causes, and consequences of obesity, related market failures, and the evidence of the impact of policies that could potentially address the market failures. More than 40% of adults in the United States are obese, and obesity-related healthcare accounts for over 20% of total annual medical expenditures. The decrease in the price of calorie-dense foods, which led to an increase in average calories consumed, is a primary cause of the rise in obesity since the 1970s. There are also significant market failures associated with obesity, including negative externalities due to pooled health insurance and asymmetric information between food producers and consumers. The presence of market failures provides support for government policies aimed at decreasing and preventing obesity. Public policy tactics to address this issue include price-based, information-based, and school-based policies. Of these, school-based policies may be the most effective as they help form healthy nutrition habits and prevent obesity in adulthood when healthcare costs are much higher. Overall, obesity rates remain high and continued government intervention is necessary to improve the market failures related to this epidemic.