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January 18, 2007

New York City’s Trans Fat Ban

Nachum Sicherman, who has researched cost-benefit analysis in medical decision making, delves into the economic angles of the city’s controversial public health regulation.


On December 4, New York City banned the use of all but trace amounts of trans fats in restaurant cooking. My first reaction was one of joy—one thing less to worry about when I go out to eat, knowing how guilty I’ll feel later for ordering greasy and delicious French fries rather than sensible but tasteless steamed vegetables.

But restaurant owners, including chefs at some of the city’s high-end restaurants, have warned New Yorkers not to rejoice. Without trans fats, they argue, it will be impossible to create the flavor and texture of many of our guilty pleasures. They also say the prices of many foods will rise, since the alternatives to trans fats are more expensive. All empirical evidence, however, suggests the opposite. The almost total ban of trans fats in Denmark had virtually no effect on the cost, availability or quality of food. Perhaps more worrisome is the risk that many restaurants will go back to saturated fats, which pose health risks of their own.

Unfortunately, being an economist means that almost no question—down to what oil to use when cooking fries—has a simple answer. First, one has to examine the costs and benefits. Trans fats are chemically modified fats that are often used in fast foods, baked goods, salad dressings and many other food products. Restaurant owners and chefs love them because they are cheaper and have a longer shelf life than butter, lard and some vegetable-based alternatives. Medical researchers hate them (and we should too) because trans fats increase cholesterol levels, thus raising the risk of coronary heart disease significantly more than alternative oils do.

Because of this health risk, some fast-food and packaged-food companies have already backed away from trans fats, anticipating a backlash once consumers became aware of the presence of trans fats in their food. (In 2003, the Food and Drug Administration ordered manufacturers to list trans fats on the labels of packaged foods.) Wendy’s now uses cooking oil made from soy and corn in its restaurants, and even our beloved Girl Scout Thin Mints are trans-fat free.

Given the industry reaction, one has to question the wisdom of a ban when increasing public awareness may achieve the same goal. Some proponents of New York’s ban have argued it is a logical next step after the success of the city’s ban on smoking in public places. But secondhand smoke — what economists call a “negative externality” — was a major argument in justifying the smoking ban. This argument doesn’t hold here. The only victims of trans fats are those consuming the food, unless one wants to consider the increased costs to the public health system as a negative externality.

In fact, the trans fat ban has more in common with seatbelt regulations, which seek to protect individuals from being victimized by their own bad choices. But if consumers are being victimized by their eating habits, why not ban the sale of countless other potentially harmful foods, like cholesterol-laden fois gras?

At a certain point, the costs of regulating behavior outweigh the benefits. In the case of banning a particular food, the costs depend on the availability of substitutes. While there seem to be good substitutes for trans fats, there are none for fois gras. Therefore, there is a good argument for banning trans fats but not fois gras — even if the fois gras is more hazardous to your health.

Why don’t governments let consumers decide whether they want to eat themselves to death (provided they have been made aware of the risks)? One answer is paternalism. It might be reasonable to conclude, at least for some of us, that the government is better at making choices than we are about what is good for us. As some psychologists point out, even individuals who are fully aware of the risks of particular foods must master a level of self-control that may be out of reach. Assigning the government to help them cope with this problem might not be a bad idea.

There’s another potential outcome of the trans fat ban that so far has gotten very little attention, and this has to do with the “compensation effect” described by Professor Sam Peltzman of the University of Chicago: sometimes, people engage in riskier behavior when they believe they are protected. For example, there is evidence that drivers who usually don’t use seat belts drive more recklessly if they buckle up. Personally, I have tried very hard, though not always successfully, to order a baked potato or rice rather than fries with my meals. Once that I know trans fats are no longer in fries, I might give up this struggle and always order fries, which even without trans fats are not the healthier option.

The likely effect of the trans fat ban on public health is far from clear, since we don’t know how the public will “compensate” by changing its consumption of certain foods. Before other cities go ahead with bans of their own (Chicago is already considering one), we need more objective research, not hasty conclusions from restaurant lobbyists or politicians.

After all, it wasn’t long ago that public health experts told us that fat-free foods could help make us thin and that carbs were good, not evil. Ordering dinner seemed so much simpler then.

Nachum Sicherman is professor of finance and economics at Columbia Business School.

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