Toward Optimal Meat Consumption

Abstract

External cost from meat consumption raises an issue of possible government mechanisms toward mitigation. Economic theory provides a framework for determining the optimal set of mechanisms considering the associated benefits and costs. Such a theoretical development rests on consumers’ responsiveness to alternative mechanisms. Considering two mechanisms, a Pigouvian tax and green-label education, yields tandem theoretical optimal government mechanisms. Populating this theoretical model with empirically derived elasticities and other parameters provides an application. Results indicate education alone will likely not yield a high social-optimal level of mitigation. Instead, if external costs warrant government mechanisms, a Pigouvian tax will be required to move consumption toward a socially optimal state.

Generated Summary

This research investigates government mechanisms, specifically a Pigouvian tax and green-label education, to mitigate the external costs associated with meat consumption. The study employs theoretical modeling and empirical analysis to determine the optimal set of mechanisms, considering consumer behavior and the associated benefits and costs. The study’s approach involves populating a theoretical model with empirically derived elasticities and parameters to assess the effectiveness of each mechanism in moving consumption toward a socially optimal state. The research aims to provide a framework for understanding consumer and livestock sector responses to government mechanisms designed to internalize the external costs of meat consumption. The unique contribution is to provide a foundation with the associated hypothesis: education is a weak mechanism for yielding a high social-optimal level of mitigation. Instead, a Pigouvian tax as a strong mechanism is required to move consumption toward the socially optimal state.

Key Findings & Statistics

• Global meat consumption increased by over 500% from 1992 to 2016, with projections of continued growth (Vranken et al. 2014; FAIRR 2017).
• The agricultural sector is responsible for 25% to 30% of global anthropogenic greenhouse gas (GHG) emissions, with livestock as the major contributor at 8% to 18% (O’Mara 2011; Wirsenius, Hedenus, and Mohlin 2011; Heller and Keoleian 2015; FAIRR 2017).
• An adoption of diets meeting healthy global dietary guidelines would have annual environmental benefits of $234 billion, with a range of $89 to $729 billion (Springmann et al. 2016).
• The USDA, Economic Research Service reported per-capita consumption was 84, 67, 107, and 18 pounds of beef, pork, chicken, and other meats (predominantly turkey), respectively (Jones, Mildred, and Melton 2019).
• For populating the model, consider per-capita beef consumption, M, as 84 lbs.
• The U.S. Dry Bean Council estimates the average 2018 per-capita bean consumption is approximately seven pounds (U.S. Dry Bean Council 2019).
• The price per pound of beef ranges from $4.07 to $7.58 for ground beef and beefsteaks (U.S. Bureau of Labor Statistics 2018).
• Considering the average price of $5.00 as the benchmark for p.
• Diederich and Goeschl (2011) estimated $8.76 per metric ton as consumers’ willingness to pay for CO2 abatement.
• Beef production generates 6.350 to 14.515 kg of CO2 per pound of beef (Fankhauser 1994).
• This results in a prosocial behavior, u, range of $0.055 to $0.126 per pound of beef.
• Assuming the possibility of zero prosocial behavior, the benchmark is set at $0.055 with a range of $0.00 to $0.126.
• For administration and enforcement costs, consider the government cost for a sugar sweetened beverage tax as a proxy for beef tax practices, at $1.90, which is assumed to be on the upper limit with a benchmark of $0.85 and lower range of $0.00.
• Considering water use as the natural-resource external cost of beef production, Peters et al. (2010) estimate the water removed from beef production relative to its absence to be 0.010 to 0.315 thousand gallons per pound. At a price of water of $1.50 per thousand gallons, this yields a range of $0.016 to $0.472 with a midpoint range of $0.24 as the benchmark (Walton 2018).
• The marginal external cost of beef replacement, MECs, is a composite value built by summing the proportion of each substitute multiplied by its minimum and maximum kilogram of CO2 per pound of output (Jones, Mildred, and Melton 2019; U.S. Dry Bean Council 2019). The value for CO2 produced from bean production employs estimates from Williams, Audsley, and Sandars (2006) with a benchmark of 10% for beef production damage.
• These minimum and maximum values yield the range of $0.04 to $0.09 for MECs with $0.065 as the benchmark midpoint.
• In terms of healthcare cost estimates for beef substitutes, it is assumed they range from a low of zero to half that for beef, $1.04, with a midpoint of $0.52. It is further assumed there are no associated animal cruelty and resource degradation for beef replacement.
• In sum, considering the social cost of CO2, healthcare costs, animal cruelty, natural resource degradation, the benchmark MECM and MECs are $3.53 and $0.117, respectively, with corresponding ranges of $0.22 to $9.86 and $0.04 to $1.13.
• According to Frey and Torgler (2007), when taxes increased from 40% to 65%, the instances of tax evasion rose from 25% to 32%.
• These yield a benchmark percent change of prosocial behavior benefit given the implementation of a tax on beef, €θτ = −0.45 with a range of -0.90 to 0.00, assuming the benchmark value is doubled.
• Applying the benchmark parameter values from table 2 directly to (5) and solving yields an estimated optimal beef tax, τ = $3.43, 68.6%, and green-label education L* = 0.027, 0.54% (table 3).
• Similarly, Proposition 1 yields τ* = $3.47, 69.4%, and green-label education L* = 0.005, 0.10%.
• For internalizing the external costs of beef consumption, a relatively large percentage of the beef price is required in the form of a Pigouvian tax relative to education.
• For these elasticities and other parameter values, a beef tax is relatively more effective than green-label education in internalizing external costs.

Other Important Findings

• The study reveals that green-label education alone may not yield a high social-optimal effect of addressing meat consumption externalities. Society probably requires a strong mechanism (Pigouvian tax) to shift consumers’ meat consumption toward a social optimal.
• Research indicates that education alone will likely not yield a high social-optimal level of mitigation.
• A Pigouvian tax will be required to move consumption toward a socially optimal state.
• Optimal government mechanisms for addressing the external costs of meat consumption require consideration of the benefits and costs of such mechanisms.
• Consumer response to government mechanisms designed to mitigate external costs are the foundation for any optimal set of mechanisms.
• Initial empirical estimates of the optimal beef tax in conjunction with programs for changing consumer preferences reveal their relative impacts on beef consumption and reducing external costs.
• Populating a theoretical optimal-mechanism model supports the hypothesis by revealing the dominance of a Pigouvian tax over an educational program.
• A meat tax may be less effective than methods taking a deeper look at consumer choice and then developing a targeted approach.
• If the marginal benefits from increased meat sector revenue result in a very strong reduction in external costs, then the optimal meat tax and green-label education would be very low and theoretically could be nonpositive.
• If the optimal level of green-label education approaches infinity, which may then internalize all the external costs.
• Optimal meat tax and green-label education are set equal to the influence they have on reducing the marginal external costs of meat consumption, which is mitigated by the additional external costs of meat-replacement consumption.
• Removing the government benefits increases the optimal tax.
• Government rebates of a meat tax will lower the optimal green-label education, L*, if consumer utility is greater than government benefits from a meat tax.
• An increase in prosocial behavior will lower the optimal meat tax and raise the green-label education.
• The results indicate education alone will not yield a high socially optimal effect of addressing meat consumption externalities.

Limitations Noted in the Document

• The precision of these estimates is asymmetric with greater certainty on costs relative to benefits.
• Different beef products will likely exhibit various magnitudes of external costs.
• The application does not make such a distinction.
• The optimal government mechanisms are only second best, given (5) depends on parameters at the social optimum and any observed values apply to the non-optimal equilibrium.
• The estimated optimal tax and green-label education are associated with rather large variances.
• Our BDM auction represents the first attempt at measuring the educational response, so subsequent research may reveal more elastic responses.
• If the elasticity of beef to green-label education approaches unity, the optimal educational expenditure approaches infinity.
• The study does not fully consider the administration and enforcement costs.

Conclusion

The research presented focuses on mitigating the external costs associated with meat consumption through government mechanisms. Economic theory provides a framework for determining the optimal set of mechanisms, considering the associated benefits and costs. The study’s key finding is that a Pigouvian tax is more effective than green-label education in internalizing external costs. This conclusion is supported by the analysis of consumer behavior and the responsiveness of meat consumption and replacement to government mechanisms. The study suggests that green-label education, while potentially beneficial, may not yield a high social-optimal level of mitigation on its own. Instead, a Pigouvian tax is required to move consumption toward a socially optimal state. The study emphasizes the importance of considering the market effects of changes in meat consumption habits (demand-oriented policies) and that the optimal government mechanisms are only second best. The research highlights the need for policies that accelerate the internalization of possible external costs of meat consumption and recognizes that the market may resolve possible inefficiencies. While green-label education can be a long-run mechanism for altering consumer preferences, the study concludes that a strong mechanism like a Pigouvian tax is probably required to shift consumers’ meat consumption toward a social optimum. The results indicate that education alone will not yield a high socially optimal effect of addressing meat consumption externalities. Society probably requires a strong mechanism (Pigouvian tax) to shift consumers’ meat consumption toward a social optimal. The study recommends that the government should consider its effect on prosocial behavior, external costs of meat replacement, benefits of research on reducing meat external costs, and administration/education costs. Economics provide a logical mechanism for categorizing the benefits and costs of such government mechanisms, which, if warranted, can yield an optimal set of mechanisms. The underlying drivers in determining if mechanisms are warranted, and if so their optimums, rest on consumer response to the mechanisms, which will hopefully lead to future policies and research.

DOI

10.1002/ajae.12016