Question

Based on the approach and economic principles laid out by the attached article, titled, "Cues in natural addiction models" discuss economic justification and effects of introducing a sugar tax in Korea.

Smith and Tasnadi (2007) use insights from neurobiology to construct a biological model of cue - triggered "natural addiction". They start with the evolutionary biological foundations of addiction, for example in foraging for food we have evolved to respond to cues such as sweetness which might convey something about the nutritional value of foods. So cues become satisfying themselves. The problem is that in modern settings, where many foods have unnaturally high sugar content, these cues can lead to destructive, unhealthy behaviors.

Smith and Tasnadi focus on the role of endogenous opioids in optimal foraging. Rats will self-administer morphine to the point of addiction and administration of opiates leads to increased food intake. Smith and Tasnadi explore the biological process: opiate molecules bind with opiate receptors and activate them leading to physiological and behavioural changes.

In particular, endogenous opioids are released they reinforce the consumption of the food stimulating the dopaminergic pathways. Dopamine is a neurotransmitter that triggers reward-seeking. It plays a key role in the neurobiology of learning and if consumption of a good (e.g. sugar) gives pleasure by stimulating these neurobiological reward structures, then more of that good will be consumed in the future. Endogenous opioids make food taste good and the consumption of sweet foods leads to release of endorphins, producing similar effects to opioids. In this way, eating sweet things generates a "biochemical cascade" causing us to eat more, irrespective of calorific needs. This also links to drug addictions because heroin and other drugs mimic the effects of these endogenous opioids. optimal foraging involves responding to environmental cues indicating nutritional value. In nature, very sugary foods occur rarely so in a primitive foraging environment sweetness signals highly nutritious foods. In a modern context, however, sugary foods are a lot more common and human physiology is not adapted to cope with their abundance.

In a modern version of Stigler's (1945) diet problem (which was about the volume of specific foods that would have to be eaten to satisfy a range of nutritional needs), Smith and Tasnadi construct a model of "natural" addiction which involves optimizing for a balanced diet. They postulate two states of the world: a no-cue balanced diet problem when people have to forage for food without specific cues; and a positive- cue balanced diet problem when positive cues are observed which gives clue about concentration of nutrients in an addictive good.

Consumption is propelled by cues. If a positive cue is received, then the consumption of the addictive good increases and consumption of other goods will fall. A simplified interpretation of Smith and Tasnadi's model illustrated in Figure 10.2 Increments to consumption of an addictive good will generate two effects : an e benefit reflecting the subjective beliefs about the nutritional value of the addictive good - shown by area B; and an e loss reflecting the impact on nutrient intake of a decrease in consumption of relatively nutritious ordinary good - shown by area L. If B>L then the perceived losses and the person will increase their consumption of the addictive substance.

Smith and Tasnadi assert that Bayesian learning generates adjacent complementarity: a positive cue in one period increases a person's judgment of their posterior probability of a positive cue in the next period. However, the process of consumption is still not fully rational. Visceral factors, and bodily responses, are important because it is subjective, psychological factors that determine the magnitude of B relative to L. In addition, as explained above, the cues may be misleading if they stimulate the dopaminergic pathways even when the potential nutritional value of an addictive substance is limited or nonexistent.

Giving-up strategies might harness the learning elements of addiction: quitting ' cold turkey' may stop the arrival of hedonic ' false clues about benefits of use. On the other hand, uncertainty, incomplete information and time inconsistency suggest a role for paternalism. Overall, Smith and Tasnadi suggest that conceptions of rationality should recognize that we are affected by sophisticated biological systems which are adapted to a pre-industrial environment. These systems can be 'hijacked' by technological advances, and we have not (yet) evolved to cope. They conclude that pleasure and satiety from smoking( and overeating, etc.) is derived from bodily effects and, whilst there is a role for habits, bodily effects and, whilst there is a role for habits, bodily urges are an important aspect of addiction. Quitting therapies could be designed accordingly. Sensory replacements such as inhalers and denicotinized cigarettes could be made more cheaply and widely available to allow addicts to satisfy their bodily 'needs to smoke.      

Answer 1

Economic justification of imposing the sugar tax in Korea is that sugary items impose high costs on the society which is mainly external cost. There are a number of heath problems associated with such food items which will increase the demand for health care systems. With more demand for better health care systems, the government will have to build more health facilities in the country. Another economic justification is that with depleting health care of the population, the workforce in the country will be largely addicted to such food items and that will invariably deteriorate their health structure and again cost the nation. Third is that a sugar tax will also help the government increase it's revenue from the tax imposed.

Economic effects of the health tax is that there is a shift in the demand for healthier products. Earlier due to larger demand for sugary products the supply firms were supplying these in larger quantity. With a tax imposed, the demand for healthier food items has increased which has changed the demand and supply pattern. However, there is a talk to that the sugar tax is regressive in the lower income sections of the population, as with the non sugary items being more costly, the richer sections will find it easier to shift to non sugary items and evade the tax thereby.