Equilibrium Effects of Food Labeling Policies

We study a regulation in Chile that mandates warning labels on products whose sugar or caloric concentration exceeds certain thresholds. We show that consumers substitute from labeled to unlabeled products—a pattern mostly driven by products that consumers mistakenly believe to be healthy. On the supply side, we find substantial reformulation of products and bunching at the thresholds. We develop and estimate an equilibrium model of demand for food and firms' pricing and nutritional choices. We find that food labels increase consumer welfare by 1.8% of total expenditure, and that these effects are enhanced by firms' responses. We then use the model to study alternative policy designs. Under optimal policy thresholds, food labels and sugar taxes generate similar gains in consumer welfare, but food labels benefit the poor relatively more.

Keywords: Food labels, equilibrium effects, misinformation, sugar taxes

JEL Classification: D12, D22, I12, I18, L11, L81

Suggested Citation: Suggested Citation

Barahona, Nano and Otero, Cristóbal and Otero, Sebastián, Equilibrium Effects of Food Labeling Policies (September 23, 2020). Available at SSRN: https://ssrn.com/abstract=3698473 or http://dx.doi.org/10.2139/ssrn.3698473