Behavioral Economics and the Demand for Alcohol: Results from the Nlsy97

30 Pages Posted: 22 Jun 2012 Last revised: 6 Mar 2022

See all articles by Henry Saffer

Henry Saffer

National Bureau of Economic Research

Dhaval Dave

National Bureau of Economic Research (NBER) - NY Office; Bentley University - Department of Economics

Michael Grossman

National Bureau of Economic Research (NBER), NY Office; CUNY The Graduate Center - Department of Economics

Date Written: June 2012

Abstract

The behavioral economic model presented in this paper argues that the effect of advertising and price differ by past consumption levels. The model predicts that advertising is more effective in reducing consumption at high past consumption levels but less effective at low past consumption levels. Conversely, the model predicts that higher prices are effective in reducing consumption at low past consumption levels but less effective at high past consumption levels. Unlike the models used in most prior studies, this model predicts that the effects of policy on average consumption and on the upper end of the distribution are different. Both FMM and Quantile models were estimated. The results from these regressions show that heavy drinkers are more responsive to advertising and less responsive to price than are moderate drinkers. The empirical evidence also supports the assumption that education is a proxy for self-regulation. The key conclusions are that restrictions on advertising are targeted at heavy drinkers and are an underutilized alcohol control policy. Higher excise taxes on alcohol reduce consumption by moderate drinkers and are of less importance in reducing heavy consumption.

Suggested Citation

Saffer, Henry and Dave, Dhaval and Dave, Dhaval and Grossman, Michael, Behavioral Economics and the Demand for Alcohol: Results from the Nlsy97 (June 2012). NBER Working Paper No. w18180, Available at SSRN: https://ssrn.com/abstract=2089252

Henry Saffer (Contact Author)

National Bureau of Economic Research ( email )

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Dhaval Dave

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Bentley University - Department of Economics ( email )

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Michael Grossman

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