Monday, February 25, 2013

Large Sugary Drink Ban Proposal

The New York Times reports that New York City was planning on banning large sugary drinks in an effort to combat obesity.  Let's think about the economic effect using some basic assumptions in the sugary drink market.  First, let's say that some consumers like sugary drinks are obese and some consumers are not.  Second, let's say that sugary drinks lead to obesity, which imposes a cost to society of less productive workers and more health care costs.

Economically, we would best off by setting the additional (external) costs plus the marginal private costs of large sugary drinks equal to the additional benefits of consuming sugary drinks.  Unless the marginal (additional) external costs are enormous, the optimal amount of sugary drinks is positive.  A ban would set quantity equal to zero, and this creates a deadweight loss to society - in that some consumers would value the additional benefits of consuming more than the combined additional costs and results in a reduction in consumer surplus.  Hence, as an economist, I would oppose a ban on large sugary drinks, unless the marginal social costs are always greater than the marginal social benefits of consumption.

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