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Published on: January 7, 2019
Alcohol consumption, beverage prices and measurement error.
Douglas J Young1, Agnieszka Bielinska-Kwapisz
1Department of Agricultural Economics and Economics, Montana State University, Bozeman, Montana 59717-0292, USA. djyoung@montana.edu
Journal of Studies on Alcohol
|April 26, 2003
Summary
Measurement error in alcohol price data biases consumption studies. Using state and federal taxes as instrumental variables corrects this, revealing significant price elasticity of demand.
Area of Science:
- Economics
- Public Health
- Econometrics
Background:
- Alcohol price data from the American Chamber of Commerce Researchers Association (ACCRA) are commonly used in research.
- These data are suspected to contain significant measurement error, potentially biasing study results.
- This error can lead to underestimating the impact of alcohol prices on consumption and related behaviors.
Purpose of the Study:
- To formally test for measurement error in ACCRA alcohol price data.
- To quantify the bias introduced by this measurement error in statistical analyses.
- To develop and present a superior estimation method to address these data issues.
Main Methods:
- Utilized per capita alcohol consumption data for U.S. states from 1982-1997.
- Employed state and federal alcohol taxes as instrumental variables for prices.
- Applied instrumental variable regression techniques to estimate price elasticity.
Main Results:
- Formal statistical tests confirmed the presence of substantial measurement error in the ACCRA price data.
- Instrumental variable estimates for the price elasticity of demand ranged from -0.53 to -1.24.
- These elasticity estimates were significantly larger in absolute value compared to ordinary least squares estimates, which were often non-significant or positive.
Conclusions:
- The ACCRA alcohol price data are significantly affected by measurement error.
- Utilizing state and federal taxes as instrumental variables effectively mitigates the bias caused by measurement error.
- This improved methodology provides more accurate estimates of the relationship between alcohol prices and consumption.
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