Tuesday, 24 July 2012

Intended and unintended consequences

Adam at Modeled Behavior points to a potential unintended consequence of Bloomberg's soda ban:
Seth Goldman, the founder of Honest Tea, has a great op-ed in the WSJ today describing how the regulation, which bans drinks over 25 calories per 8 ounce serving from being served in containers larger than 16 ounces, would be costly and damaging to his business:

We initially went with 16.9 oz. (which is 500 milliliters) because it is a standard size that our bottle supplier had in stock at the time. We subsequently invested several hundred thousand dollars for 16.9 oz. bottle molds. Is 16.9 ounces the perfect size? Who knows? As a beverage marketer, we willingly submit to the unforgiving judgment of the market. What we did not anticipate was an arbitrary decision to constrain consumer choice.
One response we considered was putting 0.9 ounce less liquid in our bottles, but that would create a separate set of complications. We fill our bottles to the brim—not just because we like to deliver an “Honest” value, but also to ensure quality since we do not use preservatives. Then there is the costly prospect of having to change all of our UPC codes (those complicated black bars found on every product on a grocery shelf) because we would be offering a different liquid volume—all for 0.9 ounces!
In addition to losing the several hundred thousand dollars in machinery they invested, they won’t switch to 16 ounces because, as Seth puts it “what if next year, Cambridge, Mass., comes up with a ban on 15.5-ounce containers?”.
I wonder whether it's necessarily unintended.

At least since Peltzman/Stigler, we've come to see regulation as a balancing of the interests of the regulated and the public. The former here we can proxy as the big soda makers.

It might not be crazy to view a ban that just catches anybody using an international standard size, 500mL, as something that imposes disproportionate costs on small producers. Big guys can spread fixed costs of this sort over lots of units, and are probably already using US standard sizes. Anybody who's gotten a good deal on a few containers of international standard metric-sized bottles winds up stuffed. At the margin, Bloomberg (or, more likely, his staffer) might have thought of this as a way of making the big guys a bit less angry about the regulation.

I'd not run the metric conversion in my head when the policy first came out; my in-the-head heuristic is 8 oz = 250mL - both are about a cup. But that was wrong: Google tells me 8 oz is 237 mL. Maybe Richard Thaler needs to nudge me into using better metric conversion heuristics.

Apologies for the brief posting hiatus; semester constraints have begun to bind.

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