On Food Companies Liability for Obesity

The U.S. food industry faces tobacco-style lawsuits for providing misleading information about health risks linked to the consumption of fatty products. This article investigates the link between alternative liability rules and the incentive for disclosing health information to consumers. We show that if the expected damage is relatively low, the absence of intervention is socially optimal. If the expected damage is not too high, mandatory labeling is socially optimal. Liability rules are only welfare-enhancing for high levels of risk and/or when consumers misperceive health warnings. Copyright 2005, Oxford University Press.