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The Rise of “Nudge” and the Use of Behavioral Economics in Food and Health Policy

The Mercatus Center just published a short piece I wrote on the the application of behavioral economics to food policy.  Here are a few excerpts:

“The rising popularity of applying behavioral economics in policymaking—or the creation of policies that “nudge” people into changing their decisions—might seem a bit odd to a food company executive. After all, advertisers and marketers have been using psychological insights for decades to encourage consumers to buy and pay more. Yet a number of bestselling books on the topic of behavioral economics have been published in the last decade, such as Nudge, Predictably Irrational, and Thinking Fast and Slow, and insights from the field are increasingly influencing policy discourse. So while behavioral economics might be seen as simply the merger of economic and psychological insights, it must also be partially understood as an attempt to influence the way government interacts with citizens. While marketers use psychological insights to boost company profits, advocates of the nudge argue that these same insights might be used by government to increase consumers’ well-being.”

and 

“It is commonly argued that governments should be allowed to enact paternalistic policies and nudge consumers because businesses do it all the time—such policies would supposedly level the playing field. It is of course true that we are constantly bombarded by advertisements and private nudges. But there is a crucial difference between government and private-business nudges. That difference is the role that competition plays in encouraging businesses to respond to consumers. When we are bamboozled or misled by a company in a way we ultimately dislike, we stop buying its product or find a new supplier. This knowledge often (though not always) constrains companies that fear the loss of reputation that might come from undertaking actions that work against their consumers’ desires. These same incentives prompt entrepreneurs to develop better alternatives. Government, with its power to mandate and coerce, lacks the intense competitive pressures provided by the profit motive. None of this is to say that people might not come to accept and appreciate certain forms of government paternalism (who among us now bristles at seat belt laws?), it is only to say that the fruitful application of behavioral economics to food policy is much more complicated than is often supposed. ”

I also point out what I think is a key asymmetry: behavioral economic results are almost always used to advocate for more regulation and intervention, but at least some behavioral economic results could be interpreted to have the opposite implication.  I also give an assessment on how behavioral economics can be fruitfully used by governments and companies alike.

Krugman on Food Policy

As incoming president of the Agricultural and Applied Economics Association, I would have loved to have seen one of our food or agricultural economist members featured at the New York Time's Food for Tomorrow conference that focused on food policy earlier this week.  That didn't happen, but at least they did have a prominent general economist on  program.  Paul Krugman's remarks are below.

He talked a bit about externalities.  I wrote on that topic in this paper.  I also brought it up when recently discussing nutritional guidelines: 

“But, what about externalities? To the extent beef production uses a lot of corn or land, that’s already reflected in the price of beef. But, does the price of beef reflect water use and potential (long run) impacts of greenhouse has emissions? Probably not fully. So, the key there is to try to get the prices right. Well functioning water markets would be a start. Greg Mankiw recently had an interview on getting the price of carbon right. Once the prices are right, then “recommendations” regarding resource use are somewhat meaningless: you’re either willing to pay (and able) the price to buy the items you like to eat or not. ”

He argues that if the externalities were properly priced organic would be no more expensive and "industrial" food would be more expensive.  I'm not so sure about that and he doesn't cite any actual evidence to support the claim.  But, here's the thing.  Let's say we had a carbon tax or carbon market.  Now we wouldn't need to answer that question or cajole people about eating organic or non-organic.  I think that was basically his answer to the 1st question that was asked.  

I was also happy to hear him say at some point, "I'm not an expert on any of this" because at a few points he seemed a bit out of his depth on the subject matter and was pandering to the audience.  That being said, I'm at least happy a good economist was in the room contributing to the debate.  His answer to the last question (at about the 22 minute mark) was pretty much right on target.

Food and Ag Policy Roundup

Legislators potentially stall changes to dietary recommendations

An appropriations bill in the House of Representatives was passed out of the agricultural subcommittee last week.  It contained the following language:

“None of the funds made available by this Act may be used to release or implement the final version of the eighth edition of the Dietary Guidelines for Americans, revised pursuant to section 301 of the National Nutrition Monitoring and Related Research Act of 1990 (7 20 U.S.C. 5341), unless the Secretary of Agriculture and the Secretary of Health and Human Services comply with each of the following requirements:
(1) Each revision to any nutritional or dietary information or guideline contained in the 2010 edition of the Dietary Guidelines for Americans and any new nutritional or dietary information or guide line to be included in the eighth edition of the Dietary Guidelines for Americans—
(A) shall be based on scientific evidence that has been rated ‘‘Grade I: Strong’’ by the 6 grading rubric developed by the Nutrition Evidence Library of the Department of Agriculture; and
(B) shall be limited in scope to only matters of diet and nutrient intake. ”

Not surprisingly, the move has raised the ire of some nutritionists.  Here's one who pushes back by saying

“The type of studies that could produce “Grade 1: Strong” evidence is extremely difficult to do in nutrition science research, because of the realities of studying free-living human beings”

and

“It makes no sense to use different standards for existing recommendations than for new recommendations. ”

So, because it is too hard to get good evidence that goes beyond correlational analysis, we should be permitted to continue to use the voice of the government to promote weak evidence and advise millions of people how to eat?  And, because we've used weak science in the past, we should continue to to use it now?  

I'd ask many of these same people if drug companies should be able to get approval from the FDA for a new drug based on the same types of studies being used to make nutritional recommendations?  If the issue here is standards of scientific evidence, why the different bars of scientific scrutiny in one case vs. the other?

I'm sympathetic to the nutritionist's concerns about politics affecting science, and I don't have a position one way or the other on aforementioned language in the appropriations bill (which may or may not make into law).  Nonetheless, there is a presumption implicit in many arguments that support the recommendations that the scientists are relying on good, compelling scientific evidence.  But, they are people too, after all, as are our elected officials.  Moreover, as I've pointed out before with regard to these guidelines, there is as much value judgement going on here as there is science.  Another challenge is that the authors of the guidelines seem to presume that people will follow - precisely - the recommendations to a tee (rather than, say, substituting meat for more carbs) and will ignore cost implications, but this misses insights from behavioral research on how people will actually respond and substitute.  Most people won't follow the precise recommendations and that should be taken into consideration by the recommendation makers. The fact that we citizens are "free-living humans beings" not only makes the research hard, it should give us pause in expecting too much of high minded regulation.  

How do USDA and EPA regulations affect farm profitability and productivity?

In a new working paper by Levi Russel, John Crespi, and Michael Langemeier, the authors create indices of the amount of regulation affecting farmers and study the extent to which such regulation affect profit and productivity growth.  

They write: 

“This paper examines the effect of USDA and EPA regulation on state-level farm performance from 1997 to 2012. The degree to which each agency regulated the agricultural sector was measured by total regulatory spending for each agency and by an index of regulatory restrictions in the Code of Federal Regulations. Two measures of farm performance were used: profitability and productivity growth. The data used to calculate profitability and productivity growth include state-level revenue and expenses data on crops, livestock, forestry, and other agricultural outputs taken from the USDA-ARMS database.

Effects of regulation are found to differ across measures of regulation and farm performance. When regulation is measured by regulatory spending, USDA regulation has a negative effect on both productivity growth whereas EPA regulation positively impacts both profitability and productivity growth. When regulatory restrictions are used to measure regulation, USDA and EPA regulations have a statistically significant, negative effect on profitability and productivity growth. The effects on profitability are measurably smaller than those on productivity growth.”

The take home:

“Productivity growth is likely to be a better measure of farm performance than
profitability . . . we find cumulative reductions in productivity growth over the 1997-2012 period of 19.94% and 25.92% due to growth in USDA and EPA regulation, respectively. It is important to note that these are reductions in the growth rate of productivity,
not its level.”