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Habit Formation and Demand for Sugar-Sweetened Beverages

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  • Chen Zhen
  • Michael K. Wohlgenant
  • Shawn Karns
  • Phillip Kaufman

Abstract

Using scanner data, we estimated demand for nine nonalcoholic beverages under habit formation. We found strong evidence for habit formation. Although demand for sugar-sweetened beverages by low-income households is less elastic to own-price changes compared with high-income households, there is evidence that high-income households consider beverages to be more substitutable than low-income households do. A half-cent per ounce tax on store-purchased sugar-sweetened beverages will result in a moderate reduction in consumption of sugar-sweetened beverages for both income strata. Because of habit formation, long-run national tax revenue from a sugar-sweetened beverage tax is about 15 to 20% lower than short-run revenue. Copyright 2010, Oxford University Press.

Suggested Citation

  • Chen Zhen & Michael K. Wohlgenant & Shawn Karns & Phillip Kaufman, 2010. "Habit Formation and Demand for Sugar-Sweetened Beverages," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 175-193.
  • Handle: RePEc:oup:ajagec:v:93:y:2010:i:1:p:175-193
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