Economics of Food Waste

There seems to be a lot of angst these days about food waste.  Last month, National Geographic focused a whole issue on the topic.  While there has been a fair amount of academic research on the topic, there has been comparatively little on the economics of food waste.  Brenna Ellison from the University of Illinois and I just finished up a new paper to help fill that void.

Here's the core motivation.

“Despite growing concern about food waste, there is no consensus on the causes of the phenomenon or solutions to reduce waste. In fact, many analyses of food waste seem to conceptualize food waste as a mistake or inefficiency, and in some popular writing a sinful behavior, rather than an economic phenomenon that arises from preferences, incentives, and constraints. In reality consumers and producers have time and other resource constraints which implies that it simply will not be worth it to rescue ever last morsel of food in every instance, nor should it be expected that consumers with different opportunity costs of time or risk preferences will arrive at the same decisions on whether to discard food”

So, what do we do?

First, we create a conceptual model based on Becker's model of household production to show that waste is indeed "rational" and responds to various economic incentives like time constraints, wages, and prices.  

We use some of these insights to design a couple empirical studies.  One problem is that it is really tough to measure waste.  And, people aren't likely to be very accurate at telling you, on a survey, how much food they waste.  Thus, we got a bit creative and came up with a couple vignette designs that focused on very specific situations.  

In the first study, respondents were shown the following verbiage.  The variables that were experimentally varied across people are in brackets (each person only saw one version).  

“Imagine this evening you go to the refrigerator to pour a glass of milk. While taking out the carton of milk, which is [one quarter; three quarters] full, you notice that it is one day past the expiration date. You open the carton and the milk smells [fine; slightly sour]. [There is another unopened carton of milk in your refrigerator that has not expired; no statement about replacement]. Assuming the price of a half-gallon carton of milk at stores in your area is [$2.50; $5.00], what would you do?”

More than 1,000 people responded to versions of this question with either "pour the expired milk down the drain" or "go ahead and drink the expired milk."  

Overall, depending on the vignette seen, the percentage of people throwing milk down the drain ranged from 41% to 86%.

Here are how the decision to waste varied with changes in the vignette variables.

The only change that had much impact on food waste was food safety concern.  The percentage of people who said they'd discard the milk fell by 38.5 percentage points, on average, when the milk smelled fine vs. sour.  The paper also reports how these results vary across people with different demographics like age income, etc.

We conducted a separate study (with another 1,000 people) where we changed the context from milk to a meal left-over.  Each person was randomly assigned to a group (or vignette), where they saw the following (experimentally manipulated variables are in brackets).

“Imagine you just finished eating dinner [at home; out at a restaurant]. The meal cost about [$8; $25] per person. You’re full, but there is still food left on the table – enough for [a whole; half a] lunch tomorrow. Assuming you [don’t; already] have meals planned for lunch and dinner tomorrow, what would you do?”

People had two response options: “Throw away the remaining dinner” or “Save the leftovers to eat tomorrow”.

Across all the vignettes, the percent throwing away the remaining dinner ranged from 7.1% to 19.5%.  

Here are how the results varied with changes in the experimental variables.

Meal cost had the biggest effect.  Eating a meal that cost $25/person instead of one that cost only $8/person reduced the percentage of people discarding the meal by an average of 5.8 percentage points.  People were also less likely to throw away home cooked meals than restaurant meals.  

There's a lot more in the paper if you're interested.

Do Survey Respondents Pay Attention?

Imagine taking a survey that had the following question. How would you answer?

If you answered anything but "None of the Above", I caught you in a trap.  You were being inattentive.  If you read the question carefully, the text explicitly asks the respondent to check "None of the Above."  

Does it matter whether survey-takers are inattentive?  First, note surveys are used all the time to inform us on a wide variety of issues from who is most likely to be the next US president to whether people want mandatory GMO labels.  How reliable are these estimates if people aren't paying attention to the questions we're asking?  If people aren't paying attention, perhaps its no wonder they tell us things like that they want mandatory labels on food with DNA.

The survey-takers aren't necessarily to blame.  They're acting rationally.  They have an opportunity cost of time, and time spent taking a survey is time not making money or doing something else enjoyable (like reading this post!).  Particularly in online surveys, where people are paid when they complete the survey, the incentive is to finish - not necessarily to pay 100% attention to every question.

In a new working paper with Trey Malone, we sought to figure whether missing a "long" trap question like the one above or missing "short" trap questions influence the willingness-to-pay estimates we get from surveys.  Our longer traps "catch" a whopping 25%-37% of the respondents; shorter traps catch 5%-20% depending on whether they're in a list or in isolation.  In addition, Trey had the idea of going beyond the simple trap question and prompting people if they got it wrong.  If you've been caught in our trap, we'll let you out, and hopefully we'll find better survey responses.  

Here's the paper abstract.

“This article uses “trap questions” to identify inattentive survey participants. In the context of a choice experiment, inattentiveness is shown to significantly influence willingness-to-pay estimates and error variance. In Study 1, we compare results from choice experiments for meat products including three different trap questions, and we find participants who miss trap questions have higher willingness-to-pay estimates and higher variance; we also find one trap question is much more likely to “catch” respondents than another. Whereas other research concludes with a discussion of the consequences of participant inattention, in Study 2, we introduce a new method to help solve the inattentive problem. We provide feedback to respondents who miss trap questions before a choice experiment on beer choice. That is, we notify incorrect participants of their inattentive, incorrect answer and give them the opportunity to revise their response. We find that this notification significantly alters responses compared to a control group, and conclude that this simple approach can increase participant attention. Overall, this study highlights the problem of inattentiveness in surveys, and we show that a simple corrective has the potential to improve data quality. ”

Experimental Auction Summer School 2016

Applications are now being accepted for a summer school on Experimental Auctions that is organized by organized by Maurizio Carnavari and co-taught with Rudy Nayga and Andreas Drichoutis.  This will be our 5th installment.  In the past we've had the summer school near Bologna Italy, but last year we venturing out to Crete, Greece with great success.  This year's course is scheduled from July 5 to July 12, 2016 in Catania, Sicily.

Experimental auctions are a technique used to measure consumer willingness-to-pay for new food products, which in turn is used to project demand, market share, and benefits/costs of public policies. Two weeks ago, I got to meet with a company in Amsterdam, Veylinx (see my previous mention of them here), who is using the method in an online format at a commercial level for marketing research. The content of the course is mainly targeted toward graduate students or early career professionals (or marketing researchers interested in learning about a new technique).  You can find out more and register here.

Here's last year's class in Crete.

And, of course, one shouldn't forget what is perhaps the most valuable part - the after-class networking and brainstorming sessions!

Impacts of Agricultural Research and Extension

About a month ago, I posted on some new research suggesting decline rates of productivity growth in agriculture.  Last week at a conference in Amsterdam, I ran into Wally Huffman from Iowa State University, and knowing he's done work in this area, I asked him if he had any thoughts on the issue.  As it turns out, along with Yu Jin he has a new paper forthcoming in the journal Agricultural Economics on agricultural productivity and the impacts of state and federal spending on agricultural research and extension.  

Jin and Huffman also find evidence of a slowdown in productivity growth, writing: 

“We find a strong impact of trended factors on state agricultural productivity of 1.1 percent per year. The most likely reason is continued strong growth in private agricultural R&D investments. The size and strength of this trend makes it unlikely for average annual TFP growth for the U.S. as a whole to become negative in the near future. However, for two-thirds of the states, the forecast of the mean ln(TFP) over 2004-2010 is less than trend. The primary reason is under-investment in public agricultural research and extension in the past. For public agricultural research where the lags are long, it will be impossible for these states to exceed the trend rate of growth for TFP in the near future.”

They also find large returns to spending on agricultural research, and even larger returns to spending on extension.  They find the following:

“For public agricultural research with a productivity focus the estimated real [internal rate of return] is 67%, and for narrowly defined agricultural and natural resource extension is over 100%. Stated another way, these public investment project could pay a very high interest rate (66% for agricultural research and 100% for extension) and still have a positive net present value. Hence, these [internal rate of return] estimates are quite large relative to alternative public investments in programs of education and health. In addition, there is no evidence of a low returns to public agricultural extension in the U.S., or that public funds should be shifted from public agricultural extension to agricultural research. In fact, if any shifting were to be recommended, it would be to shift some funds from public agricultural research to extension. ”

The paper includes a couple really interesting graphs on research spending and extension employment over time.  First, they show that for four major agricultural states, real spending on agricultural research peaked in the mid 1990s. 

And, while extension staff has declined in some states, it hasn't in others.  

The Behavioral and Neuroeconomics of Food and Brand Decisions

That's the title of a special issue I helped edit with John Crespi and Amanda Bruce in the latest issue of the Journal of Food and Agricultural Industrial Organization.  

Here's an excerpt from our summary:

“To economists interested in food decisions, progress seen in other fields ought to be exciting. In the articles for this special issue, we gathered information from a wide range of research related to food decisions from behavioral economics, psychology, and neuroscience. The articles, we hope, will provide a useful reference to researchers examining these techniques for the first time…The variety of papers in this special issue of JAFIO should provide readers with a broad introduction to newer methodological approaches to understanding food choices and human decision-making”

A complete listing of the authors and papers are below (all of which can be accessed here)

•       The Behavioral and Neuroeconomics of Food and Brand Decisions: Executive Summary
o   Bruce, Amanda / Crespi, John / Lusk, Jayson

•       Cognitive Neuroscience Perspectives on Food Decision-Making: A Brief Introduction
o   Lepping, Rebecca J. / Papa, Vlad B. / Martin, Laura E.

•       Marketing Placebo Effects – From Behavioral Effects to Behavior Change?
o   Enax, Laura / Weber, Bernd

•       The Role of Knowledge in Choice, Valuation, and Outcomes for Multi-Attribute Goods
o   Gustafson, Christopher R.

•       Brands and Food-Related Decision Making in the Laboratory: How Does Food Branding Affect Acute Consumer Choice, Preference, and Intake Behaviours? A Systematic Review of Recent Experimental Findings
o   Boyland, Emma J. / Christiansen, Paul

•       Modeling Eye Movements and Response Times in Consumer Choice
o   Krajbich, Ian / Smith, Stephanie M.

•       Visual Attention and Choice: A Behavioral Economics Perspective on Food Decisions
o   Grebitus, Carola / Roosen, Jutta / Seitz, Carolin Claudia

•       Towards Alternative Ways to Measure Attitudes Related to Consumption: Introducing Startle Reflex Modulation
o   Koller, Monika / Walla, Peter

•       I Can’t Wait: Methods for Measuring and Moderating Individual Differences in Impulsive Choice
o   Peterson, Jennifer R. / Hill, Catherine C. / Marshall, Andrew T. / Stuebing, Sarah L. / Kirkpatrick, Kimberly

•       A Cup Today or a Pot Later: On the Discounting of Delayed Caffeinated Beverages
o   Jarmolowicz, David P. / Lemley, Shea M. / Cruse, Dylan / Sofis, Michael J.

•       Are Consumers as Constrained as Hens are Confined? Brain Activations and Behavioral Choices after Informational Influence
o   Francisco, Alex J. / Bruce, Amanda S. / Crespi, John M. / Lusk, Jayson L. / McFadden, Brandon / Bruce, Jared M. / Aupperle, Robin L. / Lim, Seung-Lark