Subsidizing Obesity

Joseph Cook, Business
Second Place: Undergraduate Presentations

Problem Statement: According to the Surgeon General obesity has been classified as the biggest threat to America’s health. Obesity causes 3 of the 5 costliest chronic illnesses: heart disease, hypertension, and diabetes. The Milken Institute (2012) reports that health care costs for obese Americans are on average 40% higher than those of normal-weight adults. Abundant availability of cheap foods are a result of excess production, caused by enormous farm subsidies for crops such as corn.  Objectives: The objectives are to 1) identify the mechanism of how agricultural policy, such as corn subsidies, can be a potential cause of the negative externality of obesity by utilizing Economics, Biology, and Political Science. 2) Empirically estimate this link using cross sectional data.   Empirical Analysis: The study estimates the demand system for food consumption using time series-cross section data. Four different methods (fixed and random) are used for the estimation. The results of the models are compared to each other for their performance.  Results: The results of the regression models showed the income variables are significant at the 1% level and captured 31% of the variation in obesity. The models highlight the strong relationship between obesity and low income.  Implications: Farm subsidies have resulted in overproduction of corn and created artificially low food prices, which has widened the price gap between unhealthy and healthy food. Americans with low income are more likely to consume cheap corn products that are linked to obesity with higher healthcare costs.