Understanding Heterogeneity in Price Elasticities in the Demand for Alcohol for Older Individuals

Abstract

This paper estimates the price elasticity of demand for alcohol using Health and Retirement Study data. To account for unobserved heterogeneity in price responsiveness, we use finite mixture models. We recover two latent groups, one is significantly responsive to price, but the other is unresponsive. The group with greater responsiveness is disadvantaged in multiple domains, including health, financial resources, education and perhaps even planning abilities. These results have policy implications. The unresponsive group drinks more heavily, suggesting that a higher tax would fail to curb the negative alcohol-related externalities. In contrast, the more disadvantaged group is more responsive to price, thus suffering greater deadweight loss, yet this group consumes fewer drinks per day and might be less likely to impose negative externalities.

The role of alcohol price in young adult drinking cultures in Scotland

“…Although attempts to understand the price sensitivities of different subgroups within a population have not been absent from the evidence base for MUP, analyses of variations in responses (often expressed as consumer ‘elasticities’) have tended to operationalize ‘heterogeneity’ in terms of the individual characteristics of drinkers such as their sex and age (Cook et al., 2011; Herttua, Makela, & Martikainen, 2008; Heeb, Gmel, Zurbrugg, Kuo, & Rehm, 2003) or type of drinker, such as whether moderate or heavy consumers (Ayyagari, Deb, Fletcher, Gallo, & Sindelar, 2011; Cook et al., 2011). However, there is less evidence relating to the context in which the drinking takes place as a salient feature of cultural heterogeneity; the different meanings, values and practices around alcohol that operate in the contexts different groups drink.…”

Responses to Changes in Domestic Water Tariff Structures: A Latent Class Analysis on Household-Level Data from Granada, Spain

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Heterogeneous Effects of a Nonlinear Price Schedule for Outpatient Care

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