A Behavioral Law and Economics Analysis of Nutrition Labels Assessing the Chilean Experience on Regulatory Simplification

Abstract

Disclosure as a regulatory technique faces strong criticisms. However, regulators keep relying on this technique to remedy market failures. Obesity is not an exception. Ultra-processed food dominates our diet, despite being a main cause of overweight and obesity. Overweight and obesity, in turn, are major risk factors for many chronic diseases, such as diabetes and cancer. Nutrition labels are a type of disclosure. The empirical evidence of their effectiveness is mixed. This might be because nutrition labels have to deal with consumers' lack of literacy and/or information overload. Regulatory simplification can be an alternative to enhance label's efficacy. However, current criticisms of disclosure also reach its simplified forms, predicting that simpler labels will not have an effect on consumer behavior. Chile's new food labeling law incorporates a warning-signs model to alert consumers of foods and drinks containing sugar, fat, sodium, and calories levels above a certain threshold. This paper provides an exploratory impact assessment of this law, casting doubt on the skeptics' view of the inefficacy of simplified disclosures.

I mostly base this analysis on information available online (i.e., impact assessment surveys; newspaper articles; stakeholder presentations). However, I also conducted field interviews with key actors to complement, and corroborate, the information available on the internet.

The Chilean experience is still recent; however, it shows that simpler disclosures can have a significant effect on consumer behavior. This is a positive (or descriptive) claim. Although generalizations are hard to make, consumers tend to prefer products with no (or fewer) labels. Accordingly, only one year after the new labeling law was enacted, more than 1,500 products have modified their composition. This is despite warning labels appearing to impact only well-educated consumers. This may be causing an externality on less-educated consumers in some markets, probably a "positive" one, in many cases.

On a normative level, the impact of the new labeling regulation on the nutritional value of food is still unclear. The strategies to reach the safe harbors may not only decrease the intake of ingredients subject to control but also the nutritional value of food. Further research should provide a more specific snapshot of how particular markets reacted to the new labeling law. In addition, consumers might be drawing incorrect inferences from the warning labels. The main objective of this article is to show that consumers are not indifferent or unreactive to food warning labels. Precisely because of this, law-makers should be careful in designing regulations that consider not only how consumers will respond to the warning-labels, but also how industry participants will react to supply products with no (or fewer) labels.

Keywords: Nutrition labels, law and economics, regulatory simplification

JEL Classification: K20