Obesity: An Economic and Financial Perspective

By Goel, Rajeev K. | Journal of Economics and Finance, Fall 2006 | Go to article overview

Obesity: An Economic and Financial Perspective


Goel, Rajeev K., Journal of Economics and Finance


Abstract

Obesity has been slowly increasing in most countries. This problem has increased to an extent that it is being labeled an epidemic and a leading cause of preventable deaths, second only to smoking. This paper provides a synthesis of the extant economics literature on obesity. More importantly, a framework outlining the economic causes and effects of obesity is discussed. The causes of obesity are many, including economic, technical, historical, and biological. The effects of obesity can be external or internal. These effects, in turn, can be direct or indirect. Recommendations for governments and businesses and directions for future research are discussed. (JEL I1, J1, G0)

Introduction

Obesity has been slowly increasing in most countries over the past few years. The problem of overweight individuals has increased to such an extent that it is being labeled an epidemic and a leading cause of preventable deaths, second only to smoking. In the 1980s the percentage of the U.S. population that was more than 20 percent above their "ideal" weight increased from about a fourth to a third (Philipson, 2001). There are some interesting gender differences reflected in the increase in obesity across both sexes. While the percentage of overweight males exceeds that of the females, the percentage of obese (severely overweight) females is greater than that of the males (see Appendix). These differences have persisted overtime, suggesting that investigations to find cures for obesity should take gender differences into consideration. Further, obesity costs more in annual medical care costs than smoking does (Rashad, 2004). Economists have been rather late in realizing the gravity of this issue and it is only recently that formal analyses of the problem have started appearing. The economics literature on obesity is still in its infancy, however.

The purpose of this paper is to provide a synthesis of the extant economics literature on obesity and to suggest directions for future research. More importantly, a framework outlining the economic causes and effects of obesity will be discussed. The discussion should have some implications for public policy and for business. For example, as endogenous and exogenous factors influencing obesity are separated, this will provide useful information for businesses as in the case of insurance companies. Insurance providers could design policies that induce policy holders to change (endogenous) factors to affect obesity. Similarly, governments can design effective obesity control plans once they understand the various causes of obesity.

The problem of obesity would not be there in an economist's perfect world. In a world with perfect information with rational individuals, people would weigh their relative costs and benefits from being obese. As a result, the only persons that would be overweight would be the ones who have some medical condition (and thus managing their weight is largely beyond their control) or those who consciously desire to be so. The real world, however, is fraught with information imperfections. These imperfections contribute to obesity, among many other influences. Before discussing the causes and effects of obesity, it is useful to first spend some time on the measurement of obesity.

Classification of Obesity

Obesity can be measured in a number of ways (World Health Organization, 1997). A commonly used measure of obesity is the Body Mass Index (BMI). It is defined as the ratio of an individual's body weight (in kilograms) and height (in meters). For example, a person weighing 80 kg. and with height of 1.80 meters will have a BMI of 24.7 kg/m^sup 2^ (i.e.. 80/1.80^sup 2^). An obese person is classified as one with a BMI ≥ 30. with the average range being a BMI between 18.5 and 24.99. Individuals with a BMI between 25 and 29.99 are termed overweight. Obesity cannot be deemed a problem lacing only the wealthy nations. A number of developing nations are facing the problem of obesity along with a portion of the population being undernourished (BMI < 18. …

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