On the price elasticity of demand for alcohol

By Eric Crampton 20/09/2012

SciBlogs readers may have noticed that I’ve been having a moderately public dispute with Professor Doug Sellman about the responsiveness of drinkers to changes in the minimum price of alcohol. Rather than pull the ongoing stream at Offsetting Behaviour, I’ll here give a summary with the relevant links.

On 3 July, Sellman and Jennie Connor put out a press release including the following:

Mr Key announced today that he doesn’t believe that minimum pricing for alcohol will change the amount people drink.

“This is contrary to the scientific evidence base about alcohol pricing in general and minimum pricing in particular” said Prof Jennie Connor, medical spokeperson for Alcohol Action NZ.

“Mr Key states that what typically happens is people move down ‘the quality curve’ and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market.”

“A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks”.

“And these latest data are consistent with the scientific literature which indicates that increasing the price of alcohol has a positive impact on reducing heavy drinking”.

Read the bolded line very carefully. I’d tried embedding a survey to ask readers how they interpreted it, but javascript here seems disabled. Let’s try it this way instead: tell me in the comments whether the bolded line means:

  1. Implementing a policy increasing the price of the lowest priced alcohol by ten percent would reduce the consumption of alcohol by sixteen percent relative to other drinks like juice, soda, milk and water; or,
  2. Implementing a policy increasing the lowest price of one category of alcohol by ten percent (imagine the price of beer goes up but wine and spirits don’t) would reduce the consumption of that category of alcohol by sixteen percent relative to the other categories of alcohol that did not experience a price increase.

Chalk your answer down somewhere before continuing.

Now, note that Wagenaar et al’s meta-study of 112 studies of the responsiveness of alcohol consumption to price changes had a consensus estimate across those studies of -0.44. So a ten percent increase in price correlates with a 4.4% reduction in consumption. It’s a good that economists say is inelastic in demand: a one percent increase in price results in a drop in consumption of less than one percent. The very highest (absolute value) estimate in any of the 112 papers Wagenaar cited was -0.92. And Sellman and Connor were claiming a Canadian study found -1.6. I noted the discrepancy here.

Then I found the study that they had to be citing. The paper provided two estimates. One, the -1.6 estimate, said what happens if the price of, say, wine increases and drinkers shift over to other alcoholic products. The other, -0.34, is what happens if the price of all kinds of alcohol increases simultaneously. I read the Sellman and Connor piece as trying to apply the -1.6 estimate where, given the context, they really really really needed to be citing the -0.34 number. I got in touch with the study’s author to make sure I had it right. And I did. That’s all documented here.

Then, because I was a bit annoyed that the CDHB had gotten two separate news items into the Christchurch Press on the evils of alcohol that hinged around a new BERL estimate of the costs of alcohol to the Canterbury District Health Board with the BERL study not available to the public and where BERL continued to use a method that deliberately assumed away any potential health benefits from alcohol use, I wrote a short piece for the Christchurch Press noting the problems with both the Sellman and Connor quote and the CDHB number.

Doug Sellman replied in The Press, focusing on that my first blog post left off the term “relative to other drinks”. You’ll notice that it’s there in the Christchurch Press piece, and in all the other blog posts, but I caught the story first from Newstalk ZB. Sellman argues that he was in fact right, and that my critique hinged on my forgetting that he had used the term “relative to other drinks”. Please look back to your answer to the survey question above. He says the error was due to my being careless. Sellman then attacked me for having done funded work for the alcohol industry. I’ve made no secret of that I’ve done that work; a history of my disclosures around funding is here. In my correspondence with the editor at the Press, I noted that I had done funded work for alcohol and they could add a disclaimer if they wanted; they didn’t add one.

I critiqued Sellman’s interpretation again here. In short, it’s completely irrelevant whether “relative to other drinks” is included if most readers would interpret that as non-alcoholic drinks given the context. Chris Auld, the economist responsible for the empirical analysis in that paper, commented at the blog “Eric, for the record, I agree with your interpretation and I think Sellman and Connor’s wording is very misleading.” A condensed letter appeared in the Press last week from me, and this week from Sellman and Connor. Both are copied here. I’ve formed my own opinion of the letter, but do judge it for yourself. Here’s his first paragraph:

Dr Crampton continues his attack on us and does not admit that he made a mistake in quoting from an incorrect secondary source (Sept 11). But he does downgrade the charge from “screamingly wrong” to “very misleading”, and if he were to take several more deep breaths he would realize we are essentially in agreement. We have said often over the past three years that there is no magic bullet to change the heavy drinking culture and the harm that results from it.

First, I think the only place where I did not include the term “relative to other drinks” was in my first blog post, and it is utterly irrelevant given the context.

Second, I did not downgrade the charge. I quoted Chris Auld, whose study Connor and Sellman completely misrepresented, as saying that their use of his work was “very misleading.” Chris is more polite than I am. I am more than happy to continue to say “screamingly wrong”, for the reasons given at the post.

Sellman and Connor continue, noting that we should not dismiss as trivial that a ten percent rise in minimum price results in a 3.4 percent decrease in aggregate consumption. They do not note that their first quoted figure was five times higher than that, or that the author of the piece whose work they misrepresented viewed their use as “very misleading”. If I’d pointed out that acceleration due to gravity on earth were 9.8 meters per second squared rather than 50, I’d hardly be dismissing the effects of gravity. Their number was about that far out; it’s a bit surprising that they didn’t recognize it as such when they first saw it.

It was nice to see John Pickering at Kidney Punch casting a critical eye on Sellman’s claims around food addiction.

0 Responses to “On the price elasticity of demand for alcohol”

  • Yeah, I definitely read it as (1). Especially because the initial subject was stated as “the minimum price of alcohol”, implying all types of alcohol. If they’d replaced “alcohol” with “a type of alcohol” then interpretation (2) is then more likely. If they want to use the 16% figure, then they should also change the final “drinks” to “alcohol”.

    Thanks for continuing to follow this up. Misrepresenting studies is an ongoing problem that we need to catch.

    • Thanks! I’m glad that others read it as I did and that my perceptions weren’t unduly clouded by my having done funded work in this area previously.