EclectEcon

Last week I wrote about a Winnipeg school that has banned junk food and about the black market that emerged in the wake of the prohibition.

What if, in addition to the ban, the school set up its own sales but charged double the prices one might pay in nearby convenience stores? The higher prices would reduce the quantity demanded and have the desired result of inducing students to eat less junk food, via the substitution effect.

I doubt if the de facto Pigouvian tax (i.e. the administratively set higher prices) by itself would have much effect if the black market were allowed to continue unless the tax were so small that the transaction costs of operating in the black market were larger than the perceived gains to the students, and so the ban would have to be continued.

If the school considers this option, I recommend they just put in vending machines with high prices and make no public statements about the prices. Announcing that they are charging high prices to discourage the consumption of junk food would raise red flags and cause controversy.

When students object to the high prices, the school can then claim that the proceeds are all used for X, where X is something that would otherwise be paid for from fungible funds so that indirectly the net proceeds would end up in the general fund of the school. Perhaps the best way to proceed would be as follows:

• Announce that due to funding shortages, programme X will have to be scaled back.
• After the firestorm of protests, reluctantly give in and concede that well, okay, we'll restore that funding, but the only way we can do so is to raise funds through junk food vending machines (plus kickbacks from the pop and junkfood distributors who will pay to have their machines in the schools).
• Don't tell anyone this is the plan you're following.