An Economic Model of WIC, the Infant Formula Rebate Program, and the Retail Price of Infant Formula

By Mark Prell

Food Assistance and Nutrition Research Report No. (FANRR39-2) 39 pp, January 2005

This report develops an economic model that provides the theoretical framework for the econometric analyses presented in the report’s companion volume, WIC and the Retail Price of Infant Formula (FANRR-39-1). The model examines supermarket retail prices for infant formula in a local market area, and identifies the theoretical effects of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and its infant formula rebate program. Special attention is given to the rebate program’s sole-source procurement system by which a single manufacturer becomes a State’s "contract brand" —the State’s one supplier of formula to WIC infants—in exchange for paying rebates to WIC. When a manufacturer’s brand is designated a State’s contract brand, the model predicts that supermarkets increase that brand’s retail price. The model also predicts that an increase in the ratio of WIC to non-WIC formula-fed infants in a local market results in an increase in the price of the contract brand and, through demand substitution, a relatively small price increase for noncontract brands.

See also: WIC and the Retail Price of Infant Formula.

Keywords: WIC program, infant formula, cost containment, rebates, food package costs, Special Supplemental Nutrition Program for Women, Infants, and Children, child nutrition, food assistance, ERS, USDA

In this report ...

Chapters are in Adobe Acrobat PDF format.

• Abstract, Acknowledgments, Contents, and Summary, 54 kb
• Introduction, 41 kb
• Structure of the WIC Model, 72 kb
• Solution of the WIC Model, 51 kb
• Results of the WIC Model, 143 kb
• Appendix , 41 kb
• References, 33 kb

• Entire Document, 983 kb

Updated date: January 3, 2005