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Keywords:

  • Principal–Agent;
  • Contract Theory;
  • SNAP;
  • food choices

SUMMARY

We used a principal–agent framework to examine the feasibility of two proposed modifications to the Supplemental Nutrition Assistance Program with the goal of encouraging healthier food choices among program participants. Specifically, we analyzed two types of contract: a restricted contract and an incentive contract. The restricted contract did not allow the purchase of unhealthy foods with program benefits, but compensated participants by increasing total benefits. The incentive contract provided increased benefits that varied according to the percentage of healthy foods purchased with program benefits. The theoretical results revealed the mechanisms for the two alternative contracts, the conditions under which each would be effective, and the key empirical questions to be examined for future policy analysis. Copyright © 2011 John Wiley & Sons, Ltd.