Using behavioral economics to limit alcohol consumption

A nice paper by Henry Saffer, Dhaval Dave, Michael Grossman.

The rational/neoclassical model on understanding alcoholic behavior treats both heavy and light drinkers as one. As a result the analysis does not show the right results. In this paper, the use the behavioral economics idea of treating heavy and light drinkers as two different types.

This paper presents a new empirical study of the effects of alcohol cues and price on alcohol consumption. The specific alcohol cues which are examined are those provided  by alcohol advertising on TV and alcohol references included in TV programming. A novel feature of this study is that the empirical work is guided by a blend of behavioral economic and neoclassical economic theory. The resulting theoretical model benefits from the insights of behavioral economics while maintaining the empirical tractability of a conventional neoclassical demand model. Behavioral economic theory argues for a dual agent approach to examine the effects of advertising and price and neuroeconomic laboratory research provides evidence of a biological basis for this approach. The theoretical model employs the analytically convenient fiction of two separate underlying decision mechanisms but emphasizes a single decision outcome.

As a result, the impact of two policies – advertising and pricing- works differently for both types of drinkers:

The key conclusions of the theory is that heavy drinkers are more responsive to cues such as alcohol advertising and alcohol references in programming on TV and less responsive to price than are moderate drinkers. If this is the case, then restrictions on cues are targeted at heavy drinkers and are an important alcohol control policy. The theory also implies that, while price may limit the consumption of moderate drinkers, price is of limited importance in reducing heavy consumption. These assertions are tested with a large scale secondary data set.

Interesting application..

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