Understanding heterogeneity in price elasticities in the demand for alcohol for older individuals.

TitleUnderstanding heterogeneity in price elasticities in the demand for alcohol for older individuals.
Publication TypeJournal Article
Year of Publication2013
AuthorsAyyagari, P, Deb, P, Fletcher, JM, Gallo, WT, Sindelar, JL
JournalHealth Econ
Date Published2013 Jan
ISSN Number1099-1050
KeywordsAdult, Aged, Aged, 80 and over, Alcohol Drinking, Alcoholic Beverages, Behavior, Body Height, Costs and Cost Analysis, Female, Health Status, Humans, Male, Middle Aged, Models, Econometric, Socioeconomic factors, Taxes, United States

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.

User Guide Notes


Endnote Keywords

Alcohol/Price elasticity/alcohol taxation/Public Policy/Elasticity of demand/heterogeneous policy responses/Fiscal policy/Fiscal policy/latent groups

Endnote ID


Alternate JournalHealth Econ
Citation Key7917
PubMed ID22162113
PubMed Central IDPMC3641566
Grant ListR01 AG027045 / AG / NIA NIH HHS / United States