With the Soda Ban one of the justifications that is claimed is that it will reduce healthcare costs due to reduced incidence of Diabetes and Obesity. Now this means there’s an externality right now. The ban on large sodas then is an attempt to reduce this damage by means of regulation rather than a Pigouvian tax (Which Bloomberg tried to bring about some time ago). Either way, there is also a welfare basis to the rule rather than only behavioral.

Maybe not so much in this example, but sometimes the behavioral aspect is hard to distinguish from the welfare. Attempt to Suicide, for example, is recognized as a crime for which the person is prosecuted by the state. Thereby implying that the suicide attempter’s happiness is part of society’s happiness. (I’m assuming suicide is never a rational choice nor will it make the person happier)

Where this implication cannot be drawn, is where we’ll have a conflict between behavioral and welfare economics.

There is one small issue with behavioural economics as a rationale for policy. Should the state put each person in a position to make that rational choice or should it hoodwink him into it? For example statutory warning on cigarette packets is supposed to help the person make a rational choice by reminding him of the information which is relevant to him making a rational choice. With the soda ban, it’s basically using the default bias in people rather than letting them choose each time. Which makes me wonder, if it would be better to have a statutory warning on Extra large soda saying “Soda makes you fat and diabetic” or something of the sort.