unemployment and drinking - Unemployment and Drinking There...

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Unemployment and Drinking There are several difficulties in obtaining reliable estimates of the price elasticity of demand. One of these is the quality of the available price data, which may contain substantial measurement error and/or be endogenous. The beverage definitions have changed over time, requiring adjustments to create a consistent time series. The data may not be consistent across states and over time because members of local chambers of commerce are responsible for collection and reporting. Beer and wine price data are only available since 1982, and there are significant gaps in the data for various states and years. In addition, beverage prices may be endogenous in the sense that higher demand may result in higher market prices. In eighteen states liquor is sold through state stores and is subject to ad valorem markup and/or excise taxes. In these “control” states, the markup is in part a tax, because the state stores earn a profit, but it is difficult to determine the implicit tax rate from the normal costs of wholesaling and retailing liquor. Measurement error in the price data imply that the ordinary least squares (OLS) estimator is biased and inconsistent. Similarly, endogeneity of prices also renders the OLS estimator biased and inconsistent. In simple models, both problems would tend to result in an estimated price elasticity that is too small in absolute value (or even positive). That
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This note was uploaded on 04/30/2010 for the course ECONOMICS EC 2100 taught by Professor Dick during the Spring '10 term at National American.

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unemployment and drinking - Unemployment and Drinking There...

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