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Alcohol demand and risk preference

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  • Dave, Dhaval
  • Saffer, Henry

Abstract

Both economists and psychologists have studied the concept of risk preference. Economists categorize individuals as more or less risk-tolerant based on the marginal utility of income. Psychologists categorize individuals' propensity towards risk based on harm avoidance, novelty seeking and reward dependence traits. The two concepts of risk are related, although the instruments used for empirical measurement are quite different. Psychologists have found risk preference to be an important determinant of alcohol consumption; however economists have not included risk preference in studies of alcohol demand. This is the first study to examine the effect of risk preference on alcohol consumption in the context of a demand function. The specifications employ multiple waves from the Panel Study of Income Dynamics (PSID) and the Health and Retirement Study (HRS), which permit the estimation of age-specific models based on nationally representative samples. Both of these data sets include a unique and consistent survey instrument designed to directly measure risk preference in accordance with the economist's definition. This study estimates the direct impact of risk preference on alcohol demand and also explores how risk preference affects the price elasticity of demand. The empirical results indicate that risk preference has a significant negative effect on alcohol consumption, with the prevalence and consumption among risk-tolerant individuals being 6-8% higher. Furthermore, the tax elasticity is similar across both risk-averse and risk-tolerant individuals. This suggests that tax policies are as equally effective in deterring alcohol consumption among those who have a higher versus a lower propensity for alcohol use.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 29 (2008)
Issue (Month): 6 (December)
Pages: 810-831

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Handle: RePEc:eee:joepsy:v:29:y:2008:i:6:p:810-831

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Web page: http://www.elsevier.com/locate/joep

Related research

Keywords: Alcohol Risk preference;

References

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  1. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
  2. David M. Cutler & Edward Glaeser, 2005. "What Explains Differences in Smoking, Drinking, and Other Health-Related Behaviors?," American Economic Review, American Economic Association, vol. 95(2), pages 238-242, May.
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  8. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 537-79, May.
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  10. Kapteyn, Arie & Michaud, Pierre-Carl & Smith, James P. & van Soest, Arthur, 2006. "Effects of Attrition and Non-Response in the Health and Retirement Study," IZA Discussion Papers 2246, Institute for the Study of Labor (IZA).
  11. Adit Laixuthai & Frank J. Chaloupka, 1993. "Youth Alcohol Use and Public Policy," NBER Working Papers 4278, National Bureau of Economic Research, Inc.
  12. Henry Saffer & Dhaval Dave, 2003. "Alcohol Advertising and Alcohol Consumption by Adolescents," NBER Working Papers 9676, National Bureau of Economic Research, Inc.
  13. Philip J. Cook & Michael J. Moore, 2001. "Environment and Persistence in Youthful Drinking Patterns," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 375-438 National Bureau of Economic Research, Inc.
  14. Grossman, Michael & Chaloupka, Frank J & Sirtalan, Ismail, 1998. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(1), pages 39-48, January.
  15. Young, Douglas J & Bieli´nska-Kwapisz, Agnieszka, 2002. "Alcohol Taxes and Beverage Prices," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 57-73, March.
  16. Henry Saffer & Dhaval Dave, 2005. "Mental Illness and the Demand for Alcohol, Cocaine, and Cigarettes," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 43(2), pages 229-246, April.
  17. Frank J. Chaloupka & Henry Wechsler, 1996. "Binge Drinking In College: The Impact Of Price, Availability, And Alcohol Control Policies," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 112-124, October.
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Citations

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Cited by:
  1. Jacoline Bouvy & Just Weemers & Huub Schellekens & Marc Koopmanschap, 2011. "Willingness to Pay for Adverse Drug Event Regulatory Actions," PharmacoEconomics, Springer, vol. 29(11), pages 963-975, November.
  2. Shimokawa, Satoru, 2013. "Two Asymmetric and Conflicting Learning Effects of Calorie Posting on Overeating: Laboratory Snack Choice Experiment," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 149687, Agricultural and Applied Economics Association.
  3. Brown, Sarah & Dietrich, Michael & Ortiz-Nuñez, Aurora & Taylor, Karl, 2011. "Self-employment and attitudes towards risk: Timing and unobserved heterogeneity," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(3), pages 425-433, June.
  4. Inas Rashad Kelly & Dhaval M. Dave & Jody L. Sindelar & William T. Gallo, 2011. "The Impact of Early Occupational Choice On Health Behaviors," NBER Working Papers 16803, National Bureau of Economic Research, Inc.

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