The new vending machine at a Mason, Ohio high school only sells carrots. At 50 cents a bag, “they are selling like hotcakes”. Is it because the baby carrot video ads are amazing or that no other vending machine works during school hours?
This takes me to two recent papers:
1)In a new report described by The Economist, among the 33 OECD countries, approximately 16% of all adults are obese and 50% are overweight. For the U.S. and Mexico, however, the obesity number balloons to 33%. Correspondingly, health care spending on obese people is 25% more than on people who are not overweight.
2) The “Heavy Burden” report from George Washington University tells us that being obese costs an obese woman an extra $4879 annually and an obese man, $2646.
Solutions? The OECD report says we need action from government, private industry, and physician counseling. New U.S. health care regulation includes posting calorie counts. With chain restaurants already covered, the new health care regulation targets movie theaters, food courts, and airplanes for posting calorie counts. (But not carrots in vending machines.)
The Economic Lesson
An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, we call the result a negative externality.
We could say that burgeoning obesity rates are a negative externality. For example, urban transit improves. The result? Taking the bus or train, we experience the negative externality of burning fewer calories than we would burn when walking to work.
A benevolent impact on an uninvolved third party is called a positive externality. A community experiences the positive externality of flu vaccinations