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An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels

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  • Michael Grossman
  • Frank J. Chaloupka
  • Ismail Sirtalan

Abstract

This paper aims to refine and enrich the empirical literature dealing with the sensitivity of alcohol consumption and excessive consumption to differences in the prices of alcoholic beverages. The main refinement pertains to the incorporation of insights provided by a model of rational addictive behavior which emphasizes the interdependency of past, current, and future consumption of an addictive good. The data employed in this study consist of a U.S. panel whose members range in age from seventeen through twenty-seven. Since the prevalence of alcohol dependence and abuse is highest in this age range, addictive models of alcohol consumption may be more relevant to this sample than to a representative sample of the population of all ages. We find that alcohol consumption by young adults is addictive in the sense that increases in past or future consumption cause current consumption to rise. The positive and significant future consumption effect is consistent with the hypothesis of rational addiction and inconsistent with the hypothesis of myopic addiction. The long-run elasticity of consumption with respect to the price of beer is approximately 60 percent larger than the short-run price elasticity and twice as large as the elasticity that ignores addiction.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5200.

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Date of creation: Jul 1995
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Publication status: published as Economic Inquiry, Vol. 36, no. 1 (July 1998): 39-46.
Handle: RePEc:nbr:nberwo:5200

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  1. Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
  2. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Kenkel, Donald S, 1993. "Drinking, Driving, and Deterrence: The Effectiveness and Social Costs of Alternative Policies," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 877-913, October.
  5. Douglas Coate & Michael Grossman, 1986. "Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use," NBER Working Papers 1852, National Bureau of Economic Research, Inc.
  6. Gary S. Becker, 1991. "Habits, Addictions, and Traditions," University of Chicago - George G. Stigler Center for Study of Economy and State 71, Chicago - Center for Study of Economy and State.
  7. Chaloupka, Frank J & Saffer, Henry & Grossman, Michael, 1993. "Alcohol-Control Policies and Motor-Vehicle Fatalities," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 161-86, January.
  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Adit Laixuthai & Frank J. Chaloupka, 1993. "Youth Alcohol Use And Public Policy," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 70-81, October.
  11. Gary S.Grossman Becker & Michael Murphy & Kevin M., 1991. "Rational Addiction and the Effect of Price on Consumption," University of Chicago - George G. Stigler Center for Study of Economy and State 68, Chicago - Center for Study of Economy and State.
  12. Griliches, Zvi, 1979. "Sibling Models and Data in Economics: Beginnings of a Survey," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S37-64, October.
  13. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, vol. 41(4), pages 733-50, July.
  14. James J. Heckman & Thomas E. MaCurdy, 1985. "A Simultaneous Equations Linear Probability Model," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 28-37, February.
  15. Keeler, Theodore E. & Hu, Teh-Wei & Barnett, Paul G. & Manning, Williard G., 1993. "Taxation, regulation, and addiction: A demand function for cigarettes based on time-series evidence," Journal of Health Economics, Elsevier, vol. 12(1), pages 1-18, April.
  16. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  17. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  18. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
  19. Michael J. Moore & Philip J. Cook, 1995. "Habit and Heterogeneity in the Youthful Demand for Alcohol," NBER Working Papers 5152, National Bureau of Economic Research, Inc.
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