Behavioral Economics, Food Assistance, and Obesity

Agricultural and Resource Economics Review,  Oct 2006  by Just, David R

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Food stamp benefits are distributed through the use of an Electronic Benefits Transfer (EBT) card. The EBT card can be used to purchase most foods. Exceptions include items such as alcohol, tobacco, and ready-to-eat meals intended for consumption outside the home. Non-food items cannot be purchased with the EBT card. The United States spent $270 billion on the FSP in 2004, serving approximately one-twelfth of all Americans (Economic Research Service 2005).

Employing psychological mechanisms in the FSP is a particular challenge given that the current program offers no direct control over either the food or eating environments. Also, strategies that further limit the number of items individuals can spend their benefits on would be highly unpopular and could significantly alter participation rates.

Wilde and Ranney (2000) show that food stamp recipients consume more food just after benefits are dispersed. This is highly consistent with Laibson's (1997) notion of quasi-hyperbolic discounting. Quasi-hyperbolic discounting occurs when individuals discount time in the near future at a much higher rate than time in the more distant future. This will result in time-inconsistent behaviors like procrastination, failure to plan, and regret. Such behavior could be overcome if benefits were given more frequently. Allowing individuals to opt for more frequent benefit transfers provides a commitment device that would allow them to save and plan for the future without temptation. Further, this could reduce the stockpiling of food at the beginning of benefit periods, reducing overconsumption during this period.

Like the school lunch program, the FSP controls considerable market power. However, this power is currently completely dispersed among participants. This market power provides an opportunity to expand the number of healthy choices available to low income individuals. While many healthy foods are generally cheap, foods tend to be cheapest when sold in large packages leading to less restrained eating. Individually packaging a serving can enable consumption monitoring and reduce overall consumption. Currently, food marketers can engage in price discrimination only by offering a choice between cheaper (per quantity) large packages and more expensive smaller packages. With a twelfth of consumers, it may be attractive to allow food marketers to price-discriminate based on food stamp participation for products meeting certain healthy packaging standards. The USDA could offer some certification based on the amount of food individually wrapped in a package, and potentially other health-oriented attributes.

One way to encourage the eating of healthy portion sizes without reducing benefits would be to allow the purchase of foods designated readyto-eat. Foods could be chosen by portion size or other nutritional content. Certification provides two potential benefits to consumers. First, certification provides information to non-participants as well as participants-a potential tool to educate consumers about the psychological biases common in food consumption. Second, certification standards are likely to lead manufacturers to shape the marketing strategies of food producers, leading to a greater number of smaller portion packaged foods available on the market.