The increasing rate of obesity is a leading public health crisis in the United States. A major factor behind this trend is the increase in the consumption of high-calorie foods and beverages. This dissertation uses carbonated soft drinks (CSDs) as a case study to: (i) estimate consumer preferences towards calorie content and other nutritional characteristics; (ii) estimate how consumers' taste parameters for CSD characteristics relate to their body mass index; and (iii) assess the effectiveness of potential public policy instruments to address the obesity problem.
To examine consumer choices of CSDs, the Berry, Levinsohn, and Pakes (1995) model is applied to quarterly scanner data for 26 brands of CSDs in 20 U.S. cities, involving 40,000 consumers. This procedure involved a random coefficients logit model with data on product and consumer characteristics. The price elasticities estimated from the random coefficients logit model are used to analyze the effect of two different types of calorie taxes. The estimated taste parameters are used in a second stage regression to link calorie content preferences to body mass indexes. These estimated parameters are then used for counterfactual experiments to examine the impact of calorie taxation and the potential role of educational policy in shifting taste parameters.
The empirical results indicate that consumer choices of CSDs are driven by both product and consumer characteristics. More specifically, lower income and younger consumers, as well as males tend to have a more positive valuation of calories, suggesting that they are less concerned about obesity. Furthermore, higher income and older consumers, as well as males are precisely the ones who are less sensitive to price changes. The body mass index regression results indicate that the likelihood of obesity increases when consumers have a positive taste for calories and when they are less responsive to CSD price changes. The tax simulation results indicate that calorie-based taxes on CSDs do not have significant effects in addressing the obesity epidemic. A more hopeful but still a daunting solution for combating the obesity problem would be changing (reducing) consumers' taste for calories, for instance through educational programs. Obviously, a more comprehensive policy intervention is needed beyond the scope of this dissertation to effectively reverse the obesity epidemic possibly involving other high-calorie food and beverages, regulation of advertising to children, and programs promoting physical exercise.
