Aging and Alcohol Demand

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DESCRIPTION (provided by applicant): The empirical work outlined in this proposal is designed to estimate the effect of alcohol control policies and risk related personality factors on alcohol demand by individuals aged 50 to retirement. The alcohol policies to be investigated are alcohol prices and taxes, alcohol advertising, alcohol availability laws and drunk driving laws. The effect of a risk tolerant personality and the interaction of risk tolerance and public policies will also be investigated. No prior studies have examined the effects of these polices and factors on older individuals. This is also the first study to explicitly account for risk tolerance in the estimation of an alcohol demand function. The study of alcohol demand by older individuals is important since they are the fastest growing segment of the population. In addition, while alcohol consumption generally declines with age, younger cohorts have increasing levels of alcohol consumption at older ages. Older individuals have, in addition to the alcohol related problems common in the general population, aging related alcohol problems including a decrease in the physical ability to tolerate alcohol and an increase in the use of prescription drugs which increases the risk of adverse drug interactions with alcohol. The empirical work will use two data sets to address several specific questions. The first data set which will be used is the Health and Retirement Survey (HRS) which includes data on 22,000 individuals over the age of 50. The second data set which will be used is the Panel Study of Income Dynamics (PSID) which includes data on 11,000 individuals. The PSID although it is a general population survey is important since it can provide reference values for the effects of risk preference on alcohol consumption. There are no other studies of this question. The estimation techniques used depend on the specific question. A single equation model will be used to estimate the effect of risk preference on alcohol demand. A two equation model is needed to estimate the effect of alcohol advertising on alcohol demand and the relationship between alcohol demand and income. Exogenous sample selection and interaction terms can be used to estimate the effect of risk preference on alcohol price elasticity, the effect of risk preference on responsiveness to drunk driving laws and the effect of risk preference on the responsiveness to alcohol advertising.