Economic Analysis on the Cost of Obesity, Government Intervention,

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Economic Analysis on the Cost of Obesity,
Government Intervention, Policy Implication

• By Joseph Tsao
• 6/6/2007

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Current Relevant
June 11 2007 Issue
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Clear Present Danger

• 67 (200 millions) of Americans overweight or
  obese
• 5 billions lbs overweight
• 17 of total U.S. medical expenditures in 2004
• 12 billions (direct indirect)

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Objectives

• Q What are the costs associated with obesity?
• Q Should government intervene?
• Q If so, what and how should be done?

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Medical Cost of Obesity

• Type 2 diabetes 63.1 billion direct
  cost 32.4 billion
• Coronary Heart Disease (CHD) 7.0 billion
  (direct cost)
• Colon Cancer 2.8 billion        direct cost
  1 billion
• Post-menopausal Breast Cancer 2.3
  billion        direct cost 840
  million        indirect cost 1.5 billion
• Endometrial cancer 790 million        direct
  cost 286 million        indirect cost 504
  million
• Hypertension 3.2 billion (direct cost)
• Osteoarthritis 17.2 billion        direct
  cost 4.3 billion        indirect cost 12.9
  billion

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Lost Earnings and addional Business Expanditure

• 52 billion of earnings lost in 2002
• 40,000 deaths annually are attributable to
  obesity
• 12,000 die before retirement age
• 45,000 working YEARS lost
• Obesity increases operating costs for some
  businesses

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Discrimination

• No solid evidence but studies suggest
• Lower chance in employment
• Less wage
• Social exclusion (not discussed)

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Policy advice choose your theories carefully

• Technological change - Fossil fuels are replacing
  human/animal motor power
• Economic transition - Lifestyle change is
  associated with development of a post-industrial
  consumerist society
• Nutrition transition - Fatty foods are relatively
  cheaper than health foods. There is oversupply of
  fats and sugars. (Cheap corn cheap HFCS )
• Genetic causation - The predisposition to lay
  down fat is an evolutionary legacy
• Cultural change - Marketing and advertising
  installs new cultural norms about what and how to
  eat, and how much to eat (McDonalds and
  Coca-Colas 2 billion marketing budgets are each
  twice the WHOs full-year budget!)

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Areas of Interest

• These include but are not limited to
• Agriculture (U.S. Farm Bill) because policy
  affects what is produced
• Manufacturing for ingredients, portions and
  products
• Retail for planning, prices, availability and
  location
• Education for health knowledge and skills
• Culture for the shaping of consciousness around
  food and physical activity
• Trade for product pricing and terms of trade.

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Justification for government intervention

• First, is to promote equity.
• Second, intervention may be required to uphold
  the law.
• Third, government intervention may correct market
  failure.

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Three categories of market failure

• Externalities
• Imperfect information
• Vulnerable individuals and Demerit goods.

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Should A Child Be Removed From His Family For
Being Fat?

• Washington Post
• Britain May Take Custody of
• Obese Boy
• Monday, February 26, 2007 733 PM
• LONDON -- Authorities are considering taking an
  8-year-old boy who weighs 218 pounds into
  protective custody unless his mother improves his
  diet, Connor McCreaddie, who weighs more than
  three times the average for his age.

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Policy advice choose your theories carefully

• Technological change - Fossil fuels are replacing
  human/animal motor power
• Economic transition - Lifestyle change is
  associated with development of a post-industrial
  consumerist society
• Nutrition transition - Fatty foods are relatively
  cheaper than health foods. There is oversupply of
  fats and sugars. (Cheap corn cheap HFCS )
• Genetic causation - The predisposition to lay
  down fat is an evolutionary legacy
• Cultural change - Marketing and advertising
  installs new cultural norms about what and how to
  eat, and how much to eat

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Policy cacophony

• Models competing for policy attention, dominance
• and funds
• Build in more physical energy use into daily
  life. Design technology to help keep intake in
  balance with expenditure.
• Once sufficiently affluent, people will be able
  to tackle obesity as consumers, choosing or not,
  as they wish. At the micro level, fiscal measures
  such as fat taxes could be considered.
• Social marketing can emulate business marketing.

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Public Policy Frame Work

• A paradigm shift change engaged with and
  delivered across government, society and supply
  chain
• Prevention is key! The policy should adopt
  long-term strategies that aim to reshape not only
  the physical and dietary environment but also the
  social and cultural environment
• Political priority

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Conclusion

• A strong case for government intervention in
  order to protect children.
• Need better understanding of the psychological
  processes underlying individual behavior to
  better protect adults
• Only through better understanding in the true
  nature and size of these market failures can
  Government be expected to design policy
  interventions that are optimal or even desirable
  to the general public!