What U.S. Data Should Be Used to Measure the Price Elasticity of Demand for Alcohol?

41 Pages Posted: 4 Nov 2011 Last revised: 18 Jul 2016

See all articles by Christopher J. Ruhm

Christopher J. Ruhm

University of Virginia - Frank Batten School of Leadership and Public Policy; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Alison Snow Jones

Drexel University

William Kerr

Public Health Institute - Alcohol Research Group

Thomas K Greenfield

Alcohol Research Group, Public Health Institute

Joseph V. Terza

University of North Carolina (UNC) at Greensboro

Ravi S. Pandian

Drexel University

Kerry Anne McGeary

Ball State University - Department of Economics

Date Written: November 2011

Abstract

This paper examines how estimates of the price elasticity of demand for beer vary with the choice of alcohol price series examined. Our most important finding is that the commonly used ACCRA price data are unlikely to reliably indicate alcohol demand elasticities--estimates obtained from this source vary drastically and unpredictably. As an alternative, researchers often use beer taxes to proxy for alcohol prices. While the estimated beer taxes elasticities are more stable, there are several problems with using taxes, including difficulties in accounting for cross-price effects. We believe that the most useful estimates reported in this paper are obtained using annual Uniform Product Code (UPC) "barcode" scanner data on grocery store alcohol prices. These estimates suggest relatively low demand elasticity, probably around -0.3, with evidence that the elasticities are considerably overstated in models that control for beer but not wine or spirits prices.

Suggested Citation

Ruhm, Christopher J. and Snow Jones, Alison and Kerr, William and Greenfield, Thomas K and Terza, Joseph V. and Pandian, Ravi S. and McGeary, Kerry Anne, What U.S. Data Should Be Used to Measure the Price Elasticity of Demand for Alcohol? (November 2011). NBER Working Paper No. w17578, Available at SSRN: https://ssrn.com/abstract=1954504

Christopher J. Ruhm (Contact Author)

University of Virginia - Frank Batten School of Leadership and Public Policy ( email )

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Alison Snow Jones

Drexel University ( email )

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William Kerr

Public Health Institute - Alcohol Research Group ( email )

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Thomas K Greenfield

Alcohol Research Group, Public Health Institute ( email )

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Joseph V. Terza

University of North Carolina (UNC) at Greensboro ( email )

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Ravi S. Pandian

Drexel University ( email )

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Kerry Anne McGeary

Ball State University - Department of Economics ( email )

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