The Short- and Long-Term Effects of Mandatory Warning Labels for Unhealthier Food Products on Household Purchases

Front-of-pack nutrition labels typically indicate healthier choices and are voluntary, but a new type of label indicates unhealthier choices and is mandatory. Shaped like a stop sign, these warning labels change the reference point for consumers: unhealthier products become the exception rather than the rule. As consumers have a tendency to avoid losses, these new labels have the potential to change behavior. Using unique household panel data from Chile, where these warning labels were first enforced, the authors study the short- and long-term effects of these labels on household purchases across three large product categories. The model results show that labeling has a large and persistent effect on purchases: households cut back on labeled products and increase their purchases of non-labeled products, not only in the period immediately after labeling, but also in the long term. However, the results also point to large household heterogeneity: lower middle-class households and households with younger children primarily change their shopping. Lower class households change their shopping to a smaller extent and upper middle-class households do not change their shopping. Implications for manufacturers and policy makers are discussed.