Obesity is a market failure and innovation, not sin taxes, may be the solution
The standard economic response to high and rising obesity is to levy what’s known as a “sin tax”. The thinking is simple – add a tax to the price of the undesirable food, this increases its price, and the demand for it goes away.
However, there are both theoretical and empirical reasons to think the end of the obesity epidemic lies not in sin taxes but innovation.
Behavioral economics teaches us that people don’t tend to make decisions by making fairly involved trade-offs between costs and benefits, as the theory of sin taxes assumes. We often respond to the demands of the moment using simple rules of thumb.