Women and the Demand for Alcohol: Estimating Participation and Consumption

Studying the demand for alcohol is important for at least two major reasons. First, taxes on sales of alcoholic beverages provide substantial revenue to the government, accounting for over $9.5 billion in 1987. How this revenue stream is altered by changes in income or the population's demographic structure is an important issue. Secondly, and perhaps of more significance for this study, are the social and health implications of alcohol consumption. In particular, assessing the demand for alcohol by females of varying characteristics is important because they appear to be at more health risk than males: witness the labels warning women of the dangers of alcohol consumption during pregnancy. Also, since the early 1980s, women have been subject to an intense advertising campaign by the liquor industry (Cavanagh and Clairmonte 1985). The primary goal is to quantify the relationship between a woman's socioeconomic characteristics and decisions to drink and how much to consume. To accomplish this goal, the authors specify several theoretical models and estimate their statistical counterparts. Unlike many goods, a substantial number of women say they do not consume alcoholic beverages. Deciding to consume alcohol, much like the decision to smoke, is not only an economic decision but is also influenced by health and social considerations. Consequently, many women would not consume alcohol even if their income rose substantially or the price dropped to zero. This phenomenon raises the question of whether or not nondrinkers should be excluded from the demand curve for alcohol, such as Pomelli and Heien (1991) do in their study of wine demand. Conversely, it is also possible that many women who are currently nondrinkers, as those that are not drinking because they are pregnant, lactating, or have low incomes, will become consumers at a later date. In this case excluding nondrinkers would result in inefficient estimation of the demand curve's parameters. Another issue potentially important for modeling the consumption of alcohol is the separation of the decision to drink from the decision of how much to consume. Separating the two decisions is especially desirable if one views the decision to drink as a form of social behavior and related to factors like the prestige or stigma of drinking among different social groups, and the decision of how much to drink as a more private or individual decision based upon the usual economic variables. Most demand studies use the Tobit estimator which implies that both decisions are influenced by the same variables and in the same way. In this study, double-hurdle models that allow separation of the two decisions are employed. The following section briefly develops several theoretical economic models which are underpinnings for the statistical models described in the third section. The fourth section motivates the specification of the empirical models and describes the data. This is followed by a discussion of empirical results and conclusions. THEORETICAL MODELS In standard utility theory, everyone is assumed to be a potential consumer of all goods, but for some commodities, such as alcohol, this may not be true. That is, at all price and/or income levels some people cannot be induced to use alcoholic beverages. Pudney (1989) proposes modeling this situation using discrete random preference regimes. This approach assumes that drinkers have a different preference structure than nondrinkers. Thus, zero observations reflect the decision not to drink and only drinkers determine the parameters of the alcohol demand curve. A Heckman model, described in the next section, is an appropriate statistical model for implementing this theoretical approach (Heckman 1979). Alternatively, one can view consumers as evaluating their utility functions with and without alcoholic beverages and then determining whether or not to drink. This scenario is plausible if certain factors, as the prestige or stigma of drinking among different social groups, relate directly to the qualitative distinction between drinking and not drinking and are independent of the amount consumed. …