The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1755-4217.htm

WHATT
1,2 A review of alcohol consumption
and alcohol control policies
James J. Fogarty
110 ACIL Tasman, West Perth, Australia and
Business School, University of Western Australia, West Perth, Australia

Abstract
Purpose – The purpose of this paper is to present a review of the literature on alcohol consumption,
the externality cost of alcohol consumption, and the effectiveness of policy options.
Design/methodology/approach – Evidence on the cost to society of alcohol consumption, the
amount of excise tax collected, the demand response of consumers, and the effectiveness of
alcohol-control policies is reviewed.
Findings – Alcohol excise taxes generally, but not everywhere, fail to recover the externality costs
placed on society that arise from alcohol consumption. Where externality costs are greater than excise
revenue higher excise taxes are one effective and appropriate policy response. Complementary policies
to higher excise taxes are likely to include: the provision of more information about harmful effects to
consumers, especially the young; greater enforcement of drunk-driving laws and zero tolerance
drunk-driving laws for young drivers. Restrictions on the opening hours of late night venues may have
a modest impact on reducing costs, while advertising restrictions are unlikely to be effective.
Originality/value – Typically. articles on alcohol consider a single issue. This review paper brings
together information from both the health stream of alcohol studies and the economics stream of
alcohol studies and provides a useful survey and synthesis of the literature.
Keywords Alcoholic drinks, Consumption, Supply and demand
Paper type Literature review

1. Introduction
Alcohol consumption, from beer, to wine, and on to distilled sprits, has long been part
of human life. It is for example thought that by about 3000 BC Egyptian wine making
skills were well developed (Clark and Rand, 2001, p. 8). Recently, alcohol consumption
is widespread, and there are, according to World Health Organisation (WHO)
estimates, some 2 billion alcohol consumers. Although the amount spent on alcoholic
beverages varies significantly, both between and within countries, Selvanathan and
Selvanathan (2005, p. 209) report that on average the people of the world devote
approximately 3.2 percent of their income to alcohol.
The positive health effects of modest alcohol consumption – especially red wine
consumption – have in recent years been widely reported. Yet, high levels of alcohol
consumption, and in particular binge drinking, are associated with a range of negative
health and social outcomes. For example, the WHO (2004, pp. 50-1) estimated that in
2000, 4 percent of all disability adjusted life years lost could be attributed to alcohol.
More generally, heavy alcohol consumption is associated with elevated health and
Worldwide Hospitality and Tourism accident risk, and a range of undesirable social outcomes. High levels of alcohol
Themes consumption, or binge drinking, may therefore result in significant additional costs to
Vol. 1 No. 2, 2009
pp. 110-132 government via the health, legal, and social security systems.
q Emerald Group Publishing Limited
1755-4217
The most appropriate mix of alcohol-control policies will depend on the nature of
DOI 10.1108/17554210910962503 the problem. If the externality costs associated with alcohol consumption are largely
confined to heavy drinkers, and such drinkers are unresponsive to price changes, Review of
excise tax increases would not be an appropriate policy response. Instead, policies alcohol
based around education and information would be most effective. If most of the
externality cost associated with alcohol consumption is associated with road trauma consumption
then it may be that more rigorous enforcement of drunk-driving laws, and more severe
drunk-driving penalties would be an effective policy approach. If demand is sensitive
to advertising, restrictions on advertising may be an effective policy. If much of the 111
cost is associated with patrons leaving late night venues then it may be that policies
targeting such venues will be effective.
The remainder of the paper is structured as follows. Section 2 sets out an economic
model of consumption and provides a rationale for government policy action. Section 3
presents details on alcohol consumption patterns, the externality costs associated with
alcohol consumption, and the amount of excise revenue collected from alcohol taxes in
different countries. Section 4 reviews the evidence regarding the effectiveness of
different policy approaches, and concluding comments are presented in Section 5.

2. An economic model of alcohol consumption

Before discussing policy relating to alcohol consumption it is necessary to be clear
about the framework that supports the assessments made. Economic studies of alcohol
consumption, starting with the work of Stone (1945), began by treating alcoholic
beverages as ordinary commodities. With such an approach, the implied demand
equation for a particular beverage depends on prices, income, and consumer
preferences. The approach recognised that the full price of alcohol could involve more
than just the immediate money price, but did not recognise the possibility for past
consumption to impact on current consumption decisions. Approaches that recognise
the potential for past consumption of alcohol to impact current alcohol consumption
decisions were then developed. These approaches are now generally referred to in the
literature as myopic addiction models.
Myopic addiction models involve the estimation of demand equations where the
consumption decision depends not only on prices, income, and consumer tastes, but
also on past consumption of alcoholic beverages. The next evolution in the economic
approach involved the introduction of the Becker and Murphy (1988) hypothesis of
rational addiction. Although the title of the hypotheses remains controversial, the
demand equations that arise under the rational addiction hypothesise say that current
consumption depends on prices, income, consumer tastes, past consumption, and
future consumption.
In effect the rational addiction hypothesis says that alcohol consumption in the past,
current alcohol consumption, and future alcohol consumption are all complements in
consumption. It is the linking of consumption through time, rather than an exclusive
focus on past consumption, that distinguished the rational addiction approach from
earlier addiction models. To illustrate the implications of the assumption, consider the
following scenario. Let the government announce an excise tax increase for alcoholic
beverages of 10 percent effective immediately, and a further increase in alcohol excise
taxes of 10 percent in 12 months. The increase in current prices will lower alcohol
consumption today and higher future prices will lower future alcohol consumption.
Under the rational addiction hypothesis future consumption and current consumption
are complements. As such, knowing today that there will be higher prices in the
WHATT future implies that the fall in consumption today will be greater than it would be if
1,2 only the immediate excise tax increase was announced. In the rational addiction
framework announcing details of future policy direction can have an impact on
consumption today.
Importantly, the rational addiction hypothesis does not say that addicts are
necessarily happier being addicted. Addictive goods are characterised by:
112 .
reinforcement, which implies past use will raise the marginal utility of current
consumption;
.
tolerance, which implies that higher consumption in the past will lower the level
of satisfaction gained from a given unit of consumption in the current period; and
.
withdrawal, which involves substantial temporary negative effects for
consumers that stop using the good.

For the rational addict, the positive effect from an increase in consumption today
must be greater than the negative effect of higher consumption in the future. As
such, the value placed on future happiness can play an important role in the
consumption decision. Under the rational addiction hypothesis, if a person places a low
value on future happiness the person is both more likely to become addicted and to
stay addicted.
The value a person places on the future is captured by the discount rate or discount
factor. In this context, the discount factor is what converts future happiness values into
present value happiness equivalent units. A stylised numerical example adapted from
Skog (1999) helps illustrate the role of the discount factor in decision making. Let
overall consumer satisfaction be measured by utility, and let the level of utility with
no consumption of the addictive good at a given point in time be 100 units. Let
consumption of the addictive good increase utility to 120 units in the first period of
consumption, but reflecting the impact of tolerance and other long-term negative
impacts let utility fall to 90 in every subsequent period. Further, if the consumer stops
consuming the addictive good let them suffer withdrawal in the period they give up use
of the good. Specifically, let utility fall to 70 in the period the consumer stops using the
good. Withdrawal is however temporary, and so after one period of withdrawal utility
increases back to 100 units for each subsequent period.
For a consumer that is focused on the future and so has a discount factor of say
0.9, we find that the present value of utility from not consuming ½100 þ ð100 £ 0:9Þ þ
ð100 £ 0:9 £ 0:9Þ þ · · ·
¼ 1; 000 is greater than the present value of utility following
consumption ½120 þ ð90 £ 0:9Þ þ ð90 £ 0:9 £ 0:9Þ þ · · ·
¼ 930 and so the consumer
does not start consuming the addictive good. If for some reason the consumer found
they were already consuming the addictive good they would also find that they are
better off to stop using the good.
Having started consuming, if the consumer were to stop consuming, the present
value of utility would be ½70 þ ð100 £ 0:9Þ þ ð100 £ 0:9 £ 0:9Þ þ · · ·
¼ 970; which
compares favourably to the present value of utility from continuing to consume
½90 þ ð90 £ 0:9Þ þ ð90 £ 0:9 £ 0:9Þ þ · · ·
¼ 900: The consumer focused on their
long-term happiness would realise that it is in their best interest to stop consuming,
suffer the immediate negative consequences, and then enjoy higher levels of happiness
in future periods.
 The opposite is true for the consumer that places a low-value on the future and so Review of
has a discount factor of say 0.6. Given the same utility values used above we find that alcohol
for a person with a discount factor of 0.6, the present value of utility from not
consuming ð100 þ 60 þ 36 þ · · ·Þ ¼ 250 is less than the present value of utility consumption
following consumption ð120 þ 54 þ 32:4 þ · · ·Þ ¼ 255: For such a consumer, the
immediate gain in utility from consumption is greater than the discounted future cost
of lower utility levels in future years and so the consumer starts to consume. If the 113
consumer were already consuming and then stopped, utility would initially fall to 70
and then rise back to 100 in all subsequent periods so that the present value of utility
would be ð70 þ 60 þ 36 þ · · ·Þ ¼ 220: If the consumer is already consuming and
continues to consume, the utility will be 90 in all periods and so the present value of
utility would be ð90 þ 54 þ 32:4 þ · · ·Þ ¼ 225: When a person has a low discount factor
the future gains in utility do not compensate for the immediate pain of withdrawal and
so the consumer does not stop using.
In broad terms, the rational addition hypothesis suggests:
.
increases in the price of alcoholic beverages by way of tax increases will reduce
consumption, and the consumption response will be greater in the long run;
.
long-term policy announcements that commit jointly to current and future action
will have a greater impact;
.
the provision of further information about the potential negative health and other
impacts of alcohol consumption decisions will reduce consumption;
. information programmes could be most usefully targeted towards people that
discount the future heavily, which are, generally speaking, the young, those with
lower levels of education, and those with lower incomes; and
.
as consumers are rational, arguments for restricting alcohol consumption and
imposing excise taxes rest on the existence of negative externalities.

3. Alcohol consumption and externality costs

The WHO provides summary details on per capita alcohol consumption for broadly
defined regions. With the exception of those regions with a high-Muslim population, it
is notable that there has been a tendency towards convergence in alcohol consumption
levels across regions. Consumption levels for Europe, Africa, and the Americas, where
aggregate alcohol consumption was either high or moderate in 1961, peaked in the
early 1980s and have since gradually fallen. In South-East Asia and the Western
Pacific, where alcohol consumption was typically low in 1961, consumption levels have
generally increased (WHO, 2004, pp. 9-10).
The trend towards convergence with respect to alcohol consumption is also true
across countries. Per capita ethanol consumption information for select OECD
countries between 1961 and 2001 is shown in Table I. From the detail shown in the
table it can be seen that between 1961 and 1971 total alcohol consumption, on average,
across the countries considered, increased, and then from 1971 onwards tended to fall.
Although this is true on average, it is also true that there has been notable convergence
regarding levels of alcohol consumption across individual countries.
The countries with very high per capita ethanol consumption in 1961 – such as
France and Portugal – have seen substantial reductions in ethanol consumption in
recent decades. At the same time, those countries with very low per capita ethanol
WHATT
No. Country 1961 1971 1981 1991 2001
1,2
1 Australia 9.3 11.6 13.0 10.0 9.8
2 Canada 7.2 9.0 10.8 8.8 7.6
3 Finland 2.9 6.4 8.0 9.2 8.9
4 France 25.1 22.5 19.7 16.2 12.9
114 5 Ireland 7.8 17.2 13.0 10.6 12.3
6 Italy 16.6 18.2 13.0 10.7 8.7
7 The Netherlands 3.7 8.5 11.3 10.0 10.0
8 New Zealand 5.3 10.4 11.7 10.3 8.9
9 Norway 3.5 4.9 5.3 4.9 5.6
10 Poland 6.5 8.0 8.7 8.8 8.5
11 Portugal 17.2 20.0 15.6 15.8 13.0
12 Spain 9.6 16.0 17.6 13.2 11.7
13 Sweden 5.1 7.0 6.3 6.3 6.2
14 USA 7.8 9.8 10.5 9.7 8.3
Mean 9.1 12.1 11.8 10.3 9.5
Table I. SD 6.3 5.6 4.1 3.1 2.3
Per capita (15 years plus) SD/mean 0.69 0.46 0.35 0.30 0.24
ethanol consumption
through time Source: Selvanathan and Selvanathan (2005)

consumption in 1961 – such as Finland and The Netherlands – have generally seen
modest increases in ethanol consumption. The coefficient of variation (standard
deviation divided by mean) information presented in the bottom row of the table shows
that for the countries considered the extent of dispersion in per capita alcohol
consumption levels has fallen substantially between 1961 and 2001. It is notable that
real incomes have grown substantially in recent decades. That total ethanol intake
should generally have fallen while real incomes have risen suggests policy makers can
be relatively relaxed about the addictive properties of alcohol.
Considering per capita pure ethanol consumption is one way of presenting alcohol
consumption information. Another way of presenting alcohol consumption data is to
consider either the conditional or unconditional budget share for each alcoholic
beverage. Given the unconditional budget share for any one alcoholic beverage is
relatively small, the literature generally refers to the conditional budget share. The
conditional budget share of beverage i (i ¼ beer, wine and spirits) in country c
denoted, is given by where is the price of beverage i in country c, is the quantity of
beverage i consumed in country c, and Table II shows details on both the per capita
spend on alcoholic beverages across a range of countries and the conditional budget
share of each beverage. The expenditure measure is for off-trade purchases only, and to
the extent that there may be difference in off-and on-trade purchases, both across
countries and across beverage types, the ranking of countries in terms of total alcohol
spend may vary to that presented in Table II. As can be seen from the table, the
residents of Norway, Ireland, and Finland spend the most on alcohol, and the residents
of Turkey, Spain, and Italy spend the least.
This does not of course, mean that the residents of Norway, Ireland, and Finland
drink the most. In per capita terms, of the countries listed in Table II, the Lithuanians
(109L), Czechs (100L) and Estonians (96L) purchase the most beer for home
consumption; the Portuguese (41L), the Swiss (35L), and the Danes (33L) purchase the
 Review of
Per capita spending Conditional budget share
Country Beer Wine Spirits Total Beer Wine Spirits Total alcohol
Norway 372.1 316.9 229.8 918.8 40.5 34.5 25.0 100
consumption
Ireland 256.9 274.4 173.7 705.0 36.4 38.9 24.6 100
Finland 321.5 154.6 200.3 676.4 47.5 22.9 29.6 100
Canada 271.8 176.8 148.4 597.0 45.5 29.6 24.9 100 115
Australia 323.4 177.5 95.7 596.6 54.2 29.8 16.0 100
Denmark 237.5 240.1 86.6 564.2 42.1 42.6 15.3 100
Switzerland 86.6 411.1 64.4 562.1 15.4 73.1 11.5 100
New Zealand 233.7 235.0 73.6 542.3 43.1 43.3 13.6 100
UK 167.1 251.0 116.1 534.2 31.3 47.0 21.7 100
Sweden 144.0 220.3 117.5 481.8 29.9 45.7 24.4 100
Estonia 143.2 80.2 205.7 429.1 33.4 18.7 47.9 100
Lithuania 147.7 45.2 165.1 358.0 41.3 12.6 46.1 100
France 54.0 205.5 93.8 353.3 15.3 58.2 26.5 100
USA 183.3 67.5 94.5 345.3 53.1 19.5 27.4 100
Belgium 114.1 155.6 61.8 331.5 34.4 46.9 18.6 100
Japan 194.9 53.2 61.6 309.7 62.9 17.2 19.9 100
The Netherlands 114.9 111.0 61.9 287.8 39.9 38.6 21.5 100
Austria 137.6 91.9 42.0 271.5 50.7 33.8 15.5 100
Greece 41.6 163.2 66.6 271.4 15.3 60.1 24.5 100
Portugal 48.8 190.6 27.6 267.0 18.3 71.4 10.3 100
Czech Republic 114.9 49.3 87.3 251.5 45.7 19.6 34.7 100
Germany 94.3 89.2 58.7 242.2 38.9 36.8 24.2 100
Latvia 77.5 56.5 102.1 236.1 32.8 23.9 43.2 100
Poland 106.3 23.5 103.7 233.5 45.5 10.1 44.4 100
South Korea 107.4 38.0 49.7 195.1 55.0 19.5 25.5 100
Italy 37.8 113.4 23.8 175.0 21.6 64.8 13.6 100 Table II.
Spain 48.3 36.6 46.3 131.2 36.8 27.9 35.3 100 Per capita (legal drinking
Turkey 54.0 7.3 13.2 74.5 72.5 9.8 17.7 100 age) spending on beer
wine and spirits in 2007
Source: GMID database (US$)

most wine for home consumption; and the South Koreans (18L), the Estonians (15L),
and Lithuanians (12L) purchase the most spirits for home consumption.
In Table II, the national beverage or beverages of choice are indicated in italics. As
can be seen by reading down the table there is significant diversity in the choice of
beverage across countries. Some countries, such as Japan, Turkey, and Australia are
clearly beer drinking countries; other countries such as Switzerland, Portugal, and Italy
are clearly wine drinking countries; and Latvia, Estonia, and Lithuania are locations
where spirit drinking dominates.
For some health conditions, such as alcoholic liver cirrhosis, the cause of the
problem is entirely related to alcohol consumption. For a significant range of other
illnesses, high levels of alcohol consumption are associated with elevated disease risk
(WHO, 2004, p. 45).
Alcohol consumption is also associated with increased risk of traffic accidents, falls,
and drowning. Violent crime is also often associated with alcohol. For example, alcohol
is thought to be a factor in 24 percent of all homicides (Room et al., 2005, p. 520). Heavy
alcohol consumption is however not necessarily associated with lower earnings, and
WHATT even if heavy drinking is associated with lower earning such costs are internal cost and
1,2 are not externality costs[1].
Although the limits placed on citizens vary from country to country, driving with a
blood alcohol level below a certain level, which is sometimes zero for young drivers, is
an almost universally imposed driving condition.
Despite this restriction, driving while under the influence of alcohol remains a
116 significant problem. For the period 1950 to 1995, Skog (2001) found alcohol
consumption to be an important factor in traffic deaths in both Central and Southern
Europe. When considering data for 2002, Quinlan et al. (2005) found that 41 percent of
road traffic deaths in the USA were attributable to alcohol. For Japan, Fujita and
Shibata (2006) cite statistics that show for the period 1995 to 2001 the percentage of
road fatalities attributable to alcohol was between 13 and 14 percent. In Australia,
using data from the 1990s, Drummer et al. (2003) found alcohol to be a factor in
29 percent of road fatalities. In European, Anglo-Saxon, and Asian countries, alcohol
continues to be an important factor in road-traffic deaths and road-traffic accidents.
Direct measures such as deaths or injuries attributable to alcohol capture only part
of the negative impact of alcohol consumption. Heavy alcohol consumption is also
associated with a range of social ills. The estimates of the annual economic and social
cost of alcohol abuse reported for different countries in WHO (2004, p. 66) are varied
but all the estimates are extremely large. To see how it is possible to arrive at very high
estimates of the economic and social cost of alcohol, it is worth considering a recent
Australian study. Using self-reported measures, Pidd et al. (2006) estimated that in
2001, 2.7 million working days were lost in Australia due to alcohol-related
absenteeism, and that the cost of these lost days was AU$ 440 million. As an
interesting extension, Pidd et al. (2006) also consider the possibility that the overall
absentee rates due to illness and injury might not be the same for drinkers and
non-drinkers. The absentee rates due to injury or illness of alcohol abstainers were
compared to the absentee rates due to illness and injury of various groupings of alcohol
drinkers to obtain an estimate of the extent of any additional work absenteeism
attributable to injury and illness that might be explained by alcohol consumption.
Drinkers do have higher absentee rates for injury and illness, and using this expanded
measure it was found that in 2001 the combined extent of absenteeism attributable to
alcohol was 7.4 million days lost, with an implied cost of AU$ 1,200 million. Australia
is not unique, and using Swedish data from 1935-1990 Norström (2006) found that a
one litre increase in the per capita consumption of ethanol was associated with an
increase of 13 percent in male illness-related absenteeism.
Considerable detail on the cost of alcohol consumption in the UK has been presented
to the UK Government (2003). Some calculations with regard to costs that are reported
in the study, such as those related to lost output due to absenteeism and premature
death, are involved and require assumptions that not all will agree with. Other
calculations are however more straight forward and less controversial. For example, in
2000-2001, alcohol-related health care costs, other than health care costs associated
with alcohol-related motor vehicle accidents, were estimated to be between £1,400 and
1,700 million. Costs incurred by the police and the legal system as a consequence of
alcohol-related crime were estimated to be approximately £1,700 million. Total costs to
the UK society, including estimates for such things as lost output due to absenteeism
and premature death, and time taken by victims of crime to recover, were estimated to Review of
be between £18,500 and 20,000 million. alcohol
Alcohol consumption does place externality costs on society and so it is appropriate
that alcoholic beverages are taxed to recoup these costs. Calculating the cost to society consumption
of alcohol consumption is however not simple. Cnossen (2007) reviews alcohol
externality cost estimates from several studies and compares the estimates to alcohol
excise revenue. The review shows that for Ireland, England and Wales, Denmark, 117
Belgium, The Netherlands, France, Germany, Spain, Portugal, and Italy, the amount
collected from alcohol excise taxes is not sufficient to cover the externality costs of
health care and treatment, criminal justice expenses, property damage, and traffic
accident costs. Of the countries reviewed, Finland is the only example where alcohol
excise taxes are sufficient to cover these costs.
It is however worth noting that the reference year for alcohol excise tax information
in Cnossen (2007) is 2003 and that in 2004 Finnish beer, wine, and spirit taxes were
reduced by 10, 32 and 44 percent, respectively.
Barker (2002) uses the estimates of direct costs in Devlin et al. (1997) to show that in
New Zealand excise taxes on alcohol are sufficient to cover externality costs. On the
question on excise taxes collected relative to externality costs in the USA, Heien (1995)
and Grossman et al. (1995) express different views, although perhaps the arguments
that excise tax rates in the USA are too low put forward in Grossman et al. (1995) are
more convincing. For Australia, the actual alcohol excise and customs revenue for
2004-2005 was equal to approximately 70 percent of the Collins and Lapsley (2008)
estimated net health, road trauma, and crime-related costs associated with alcohol
consumption for the same year. So while it is not exclusively the case, in general
alcohol excise taxes do not cover the externality costs associated with alcohol
consumption. Such a situation suggests that in many countries it is appropriate to
consider additional alcohol policy measures.

4. Alcohol policy options and their effectiveness

Depending on the nature of the demand response, higher alcohol excise taxes may raise
more or less revenue for governments. In any event, it is not clear that raising alcohol
excise taxes is the most appropriate policy response. Where the externality cost
associated with alcohol consumption is greater than alcohol excise revenue,
governments can focus on policies that raise greater revenue or policies that lower
the externality cost.
The impact of advertising on the actions of individuals can be traced back at least
as far as Galbraith (1967) where it is argued that the selling strategy deployed by
companies can alter in important ways where consumers spend their money. When it
comes to alcohol, governments have generally taken the potential for industry
participants to influence the spending patterns of consumers seriously, and have, over
the years, imposed various restrictions on alcohol advertising. The restrictions have
taken many forms: restrictions on the time and days when advertisements can be
shown; outright advertising bans for some beverage types, typically spirits; outright
bans for some types of advertising, often billboard advertising; implementation of
industry codes of practice, etc. A relatively comprehensive country-by-country
summary of the different alcohol-advertising restrictions that exist can be found in
Selvanathan and Selvanathan (2005, pp. 304-11).
WHATT The Galbraithian view of advertising – that it is possible for advertising to change
1,2 not only the brand of good a consumer chooses within a given broad commodity
grouping but also the overall allocation to aggregate commodity groupings – is not
widely held by economists. Generally, economists see advertising as influencing
decisions about which particular brand to choose rather than the overall
budget allocation to a particular consumption group. As such, when demand
118 modelling progressed from single-equation utility-free approaches to system-wide
equation approaches based on utility theory, advertising effects were not commonly
modelled or tested.
That standard economic analysis generally does not treat advertising well is
possibly due to the reluctance of economists to consider the possibility that advertising
can alter consumer tastes. Becker and Murphy (1993), by setting up a standard
consumer theory based framework where advertising is treated as a complement good
and so enters the consumer utility function directly, offered a way forward for
economics to treat advertising. Essentially, the theory says that if advertising for beer
is a complement to beer consumption, greater beer advertising will lead to greater beer
consumption. As the Becker and Murphy (1993) framework sits entirely within the
standard economic approach to consumer behaviour, all the results of consumer theory
apply, including some that while plausible might be questioned. For example,
consumer theory imposes symmetry in cross-price effects for all goods consumed. This
requirement says that if the good beer advertising is a complement to the good beer
(reasonable assumption); the good beer is a complement to the good beer advertising
(plausible but less reasonable assumption). In formal terms the advertising as a
complement good theory requires both the following results hold:
.
beer advertising increases the marginal utility of beer consumption and hence
increases the demand for beer; and
.
beer consumption increases the marginal utility of beer advertising and hence
increases the demand for beer advertising.

The theory of advertising as a complement to consumption may not be a perfect

theory, but it nevertheless represents a substantial improvement on notions of
advertising representing information only which has sometimes been the default
position in economic studies. The theory also provides a theoretical framework that
supports the idea that alcohol advertising can result in higher levels of consumption.
Given the Becker and Murphy (1993) theory, and the Galbraith (1967) view, it is worth
investigating the empirical evidence regarding alcohol advertising and alcohol
consumption.
Nelson (2003) takes advantage of the different alcohol policies in the US states to
investigate the impact of different alcohol advertising restrictions on the US alcohol
consumption. In addition to results for total ethanol consumption, results are also
reported for individual beverage effects. A billboard spirits advertising ban is shown to
be associated with higher overall ethanol consumption, higher spirits and wine
consumption, and lower beer consumption. The finding that billboard advertising bans
for spirits are associated with higher spirits consumptions is consistent with the
findings reported in Ornstein and Hanssens (1985). Another type of advertising
restriction that Nelson investigates relates to the effect of restricting advertising the
price of spirits. Not allowing spirits prices to be advertised should raise search costs,
which in turn raises the total price of sprits, which in turn should lower spirits Review of
consumption. The evidence presented suggests that not allowing spirits prices to be alcohol
advertised does lower spirit consumption, but the restriction is also associated with
higher beer and lower wine consumptions. The net effect is therefore to leave total consumption
ethanol consumption unchanged.
At the individual beverage level, several studies have estimated alcohol advertising
elasticities. Nelson and Moran (1995) estimate four different system-wide demand 119
model specifications to investigate the demand for beer, wine, and spirits. In the case of
beer and spirits, no own-advertising elasticity estimates are positive. For wine, the
estimates are positive and statistically significant, but are of a very small magnitude.
When considering ethanol consumption no evidence is found for an advertising effect.
Using more detailed advertising information the result is confirmed in Nelson (1999),
where although some minor advertising effects are detected across beverages,
advertising is shown to have no impact on total ethanol consumption. Using a
cointegrating version of the AIDS demand model, Duffy (2002) found that
own-advertising effects and cross-advertising effects for beer, wine, and spirits in
the UK were generally zero, and where they were non-zero the effects were very small
and sometimes had the wrong sign. Advertising is also shown to have essentially no
impact on total alcohol consumption.
The results agreed with the findings of earlier studies on advertising and alcohol in
the UK (Duffy, 2001, 1995, 1987; Blake and Nied, 1997; McGuninness, 1983).
The results of Saffer and Dave (2006) regarding the effect of alcohol advertising in
the USA are worth noting both for the result themselves, and for the hypothesis the
authors put forward. The author’s hypothesises that alcohol advertising does increases
consumption but that the increments are subject to diminishing marginal returns. The
advertising to sales ratio in the alcohol industry is high.
Studies using aggregate advertising data, such as the studies cited above, may
therefore be investigating the impact of advertising over a range where the marginal
impact is very low. To investigate the validity of the hypothesis, the authors make use
of the substantial variation in advertising across major US cities on the decision of
American teenagers to participate in drinking and to participate in binge drinking and
found that advertising had a small positive effect. To put the results in perspective, the
authors report the results of a simulation exercise where there is a 28 percent reduction
in total alcohol advertising. The results suggest that a 28 percent reduction in
alcohol advertising – holding constant non-direct advertising such as sponsorships,
etc. – would lower youth participation in binge drinking from 12 percent to between
11 and 8 percent, and past month participation in drinking from 25 percent to between
24 and 21 percent.
There is little other evidence for countries outside the USA and the UK regarding
the impact of advertising on alcohol consumption, although Owen (1979) found
advertising to be insignificant in an investigation of wine demand in Australia. It does
however seem likely that substantial reductions in alcohol advertising will have at
most a small to modest impact on the alcohol consumption decisions people make.
Where restrictions apply to a particular beverage there may be a reduction in demand
for that beverage. However, due to substitution effects there is likely to be an increase
in the consumption of other alcoholic beverages and this increase may offset the effect
of the advertising ban. Finally, it needs to be noted that much of the alcohol advertising
WHATT spend is actually on promotions and sponsorships. As such, when faced with an
1,2 advertising restriction of one kind or another, alcoholic beverage companies may
simply increase the amount spent on promotions and sponsorships. Any such
spending is likely to further limit the effectiveness of advertising bans.
Drunk-driving laws have resulted in fewer fatalities and injuries and so have
lowered externality costs (Rogers and Schoenig, 1994; Neustrom and Norton, 1993;
120 Hingson et al., 2000). Regarding the young and drunk driving in the USA, there have
been several studies. The meta-study of Zwerling and Jones (1999) and subsequent
work such as Eisenberg (2003) support the proposition that lowering the legal BAC
limit for young drivers works to reduce fatal road crashes. Carpenter (2004) suggests
that the key behavioural change that the zero-tolerance BAC laws have is to reduce
the heavy drinking activities of young males. Zero-tolerance drunk-driving laws for the
young therefore appear to not only reduce road accidents, but also have a more
pervasive impact as they change behaviour such that episodes of binge drinking
are reduced.
Sen (2005) used data on the blood alcohol level of fatally injured drivers to
investigate the impact of tougher drunk-drinking laws, and the impact of media stories
about drunk driving in Canada over the period 1982-1992. Results are reported for
multiple regression specifications and the possibility that media publicity is
endogenous is also considered. The findings reported suggest that media publicity
regarding drunk driving is associated with a reduction in the probability that the
fatally injured driver had a blood alcohol level greater than the legal limit of 0.08.
Consistent with the rational addiction hypothesis, additional information in the form of
media publicity regarding the penalties and consequences associated with drunk
driving can impact consumer behaviour.
Results are reported in Freeman et al. (2007) for a study investigating the impact of a
so-called lock out policy at late night drinking establishments on the Australian Gold
Coast. The specific policy change evaluated was the introduction of a policy whereby
new patrons are not allowed to enter licensed venues after a certain time, but those
already inside are allowed to stay inside. In the study, the specific lockout period was
between 3 a.m. and 5 a.m. The policy did not appear to have a statistically significant
impact on traffic offences involving alcohol, or property, stealing, and assault
incidents, but general disturbance incidents and sexual incidents between 3 a.m. and
6 a.m. in the area were lower, and the difference was statistically different. In the case
of sexual incidents that required the attendance of a police officer, prior to the policy
change 56 percent of reported sexual incidents involved alcohol. After the policy
change only 23 percent of reported incidents involved alcohol. More generally, for the
period 3 a.m. to 6 a.m. the proportion of alcohol-related incidents that required the
attendance of a police officer fell from 51 to 39 percent of incidents. Evaluated over a
24-hour period the fall in the proportion of alcohol-related incidents requiring a police
officer to attend was however much smaller. Specifically, the share of alcohol-related
incidents fell from 26 percent prior to the policy change to 23 percent after the policy
change.
Bouffard et al. (2007) report that following an extension of trading hours in
Minnesota there was a statistically significant increase in drunk-driving arrests.
However, following detailed analysis of the distribution of offences and enforcement
behaviour the authors conclude that the observed increase in drunk-driving charges
were probably a result of greater policing rather than a change in behaviour. Increases Review of
and decreases in establishment drinking hours do not appear to play a significant role alcohol
in changing behaviour. As such, they are unlikely to be an especially effective policy
measure in reducing externality costs. consumption
A final policy area to investigate is the impact of higher prices on alcohol
consumption. Outside Kenkel (2005), which deals with alcohol tax pass through rates
in Alaska, there is relatively little evidence regarding actual alcohol excise tax pass 121
through rates. As such, the focus here is on the effect of price changes more generally.
The own-price elasticity of a good is defined as the percentage change in quantity
demand divided by the percentage change in price. In the alcohol-demand literature,
details are reported for Marshallian, Hicksian, and Frisch own-price elasticity
estimates. Marshallian own-price elasticities measure the total observed consumption
change following a price rise and include both the income effect and the price effect.
Frisch own-price elasticities measure the consumption change where the marginal
utility of income is held constant, and Hicksian own-price elasticities measure the pure
price effect. Where the objective is to understand the effect a price change will have on
consumption it is most useful to concentrate on the reported pure price effect. The
remainder of the discussion presented in this section therefore relates to Hicksian
elasticity estimates only.
Fundamentally, the own-price elasticity of a good is determined by the number of
substitute products. That this is the case can be seen by considering the implications of
demand homogeneity in elasticity form. Demand homogeneity says that the sum of the
own-price elasticity and the cross-price elasticities must equal zero, where by
construction the Hicksian own-price elasticity must be negative. A negative cross-price
elasticity indicates the goods are complements, and a positive cross-price elasticity
indicates the goods are substitutes. The number of substitute products and the degree
to which they are substitutable therefore determines the Hicksian own-price elasticity
of a good. As alcohol is both mind altering and addictive, it is reasonable to suggest
alcohol has relatively few substitutes. On this basis, estimates of the own-price
elasticity of demand for alcoholic beverages are unlikely to be far from zero. If,
however, consumers see beer, wine, and spirits as good substitute products, the own
price elasticity estimates could be some distance from zero.
The approach taken to estimate the demand for alcoholic beverages has evolved
substantially over time. The oldest approach in the literature is the utility-free
approach, where typically, but not always, a double-log demand equation is estimated.
Some of the earliest examples of the approach that are relevant include Stone (1945)
and Prest (1949). Single-equation approaches were progressively replaced by
system-wide approaches, most commonly either the AIDS approach due to Deaton
and Muellbauer (1980), or the Rotterdam model based on the work of Barten (1964)
and Theil (1965). More recently, explicit time-series approaches have appeared to
complement system-wide approaches. Additionally, models have been developed to
test the rational addiction hypothesis of Becker and Murphy (1988). Although when
using modern approaches to estimate demand responses elasticity estimates do not
always naturally appear in the equations estimated, the implied elasticity values are
nevertheless almost always reported.
Summary details are shown in Figures 1-3 on estimates of the Hicksian own-price
elasticity estimates for beer, wine, and spirits reported in the literature. In each of the
WHATT United States
1,2 United Kingdom
Sweden
Spain
Norway
New Zealand
122
Japan
France
Finland
Denmark
Cyprus
Canada
Figure 1.
Review of alcohol Australia
consumption
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5

United States
United Kingdom
Sweden
Spain
Norway
New Zealand
Japan
France
Finland
Denmark
Cyprus
Canada
Figure 2.
Australia
Review of alcohol
consumption
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5 1.0

figures, the small dots represent actual own-price elasticity estimates reported in the
literature and the large solid dot represents the arithmetic mean own-price elasticity
estimate for each country. The thick grey line represents the arithmetic mean value
taken across all observations. At the aggregate level the mean own-price elasticity
estimates across all observations are: beer – 0.44, wine – 0.63, and spirits – 0.69. So,
while demand for alcoholic beverages appears to be price inelastic, increases in the
price of alcoholic beverages will result in lower consumption.
In Figures 1-3, a dashed line is used to indicate a value of zero. As can be seen in the
figures, at the individual country level occasionally positive own-price elasticity
 United States Review of
United Kingdom alcohol
Sweden consumption
Spain
Norway
New Zealand 123
Japan
France
Finland
Denmark
Cyprus
Canada
Figure 3.
Australia
Review of alcohol
consumption
5.0 4.0 3.0 2.0 1.0 0.0 1.0

estimates are reported. For example, there is one positive beer own-price elasticity
estimate for the USA. Most of the reported estimates for beer in the USA are however
$ 2 1 and # 0, and the mean own-price elasticity estimate for the USA is – 0.45.
Across all beverages and all countries, with the exception of wine in Japan, the mean
own-price elasticity estimate is negative. For the case of wine in Japan, although the
mean own-price elasticity estimate is positive the median estimate is negative. The
evidence therefore appears to be overwhelming. Increases in the price of alcoholic
beverages lead to decreases in consumption, everywhere.
As the demand for beer, wine, and spirits appears to be price inelastic, it suggests
consumers generally do not see beer, wine, and spirits as especially substitutable
products. This is interesting as it suggests consumers are interested in more than just
alcohol content when they make a consumption decision. From a research perspective,
it would therefore seem wise to study the demand for individual alcoholic beverages
rather than the demand for alcohol as a composite good. In this context, it is also
interesting to note evidence presented in Clements et al. (1997) that supports the
concept of additive utility for the case of individual alcoholic beverages. Additive
utility is usually associated with broad consumption aggregates such as food and
housing, but when applied to alcohol consumption the concept means that the marginal
utility from the consumption of one beverage is not affected by changes in the level of
consumption of the other two beverages. One possible interpretation of such a result
could be that the consumers of each beverage type represent distinct social groups.
Additive utility also has implications for how alcohol excise taxes can be structured.
The Ramsey commodity taxation principle says that the introduction of commodity
taxes should leave the relative proportional demand for each good unchanged. For the
case of additive utility across individual alcoholic beverages such a result suggests
that this can be achieved by using an inverse own-price elasticity rule. By way of
illustration, consider the case of the UK. In 2006, the excise taxes for beer, wine, and
WHATT spirits, expressed per litre of product, were: beer e1.90, wine e2.53, and spirits e11.50
1,2 (Cnossen, 2007, p. 704). On a per litre of product basis spirits are therefore taxed at
about six times the rate of beer, and four times the rate of wine. The average own-price
elasticity values reported in the literature for the UK were: beer – 0.44, wine – 0.63,
spirits – 0.70.
Applying the inverse elasticity rule for the UK suggests that wine should be
124 taxed approximately 10 percent more than spirits, and that beer should be taxed
approximately 50 percent more than spirits. Under the inverse elasticity approach to
alcohol taxation, the actual excise tax rates would be set to recoup the best estimate of
the externality cost of alcohol consumption.
An important criticism of any policy approach aimed at deceasing alcohol
consumption by increasing alcohol excise taxes would be that the alcohol consumption
distribution is highly skewed and that the heavy and binge drinkers responsible for
much of the externality cost would not change their behaviour. It could further be
argued that as the majority of consumers enjoy alcoholic beverages in moderation, to
penalise the majority by way of higher excise taxes is an inappropriate policy response.
Economic theory predicts that for a standard good the higher the budget share of
the good the greater the observed consumption change following a price change;
although not everyone will agree that alcohol should be treated as an ordinary good. If,
instead of treating alcohol as a standard consumer good, we treat it as an addictive
good, the rational addiction hypothesis still implies that consumption will fall
following a price increase, even for heavy users. Although under the conditions of
rational addiction, the long-run effect will be greater than the short-run effect and so it
is important to note that it may take some time before the full impact of a price change
is observed. It is also notable that under the rational addiction model if the price
increase is significant enough it is possible heavy users will quit use of the good
altogether. The impact of a price increase under rational addiction is shown in Figure 4.
In Figure 4, the vertical axis measures consumption of the addictive good at a point in
time and the horizontal axis measures the stock of what is called addictive capital. The
d represents the rate of depreciation of addictive capital and so the line c ¼ dS
represents all possible steady-states. The various Ai curves represent the relationship
between consumption of the addictive good and the stock of addictive capital for a
consumer with a given utility function and a given set of prices.
Consider first the figure on the left. With prices such that A0 represents the
relationship between the consumption of the addictive good and the stock of addictive
capital, the stable steady-state is found at consumption c0 where the stock of addictive

c = δS c = δS
c0 A0 c0 A0
ct A1
Consumption
Consumption

c1 A2
ct

c2
S1 S0 S2 S0
Figure 4.
Stock of addictive capital Stock of addictive capital
capital is S0. In this particular representation, the individual is a relatively heavy user Review of
of the addictive good. An increase in the price of the addictive good will cause the curve alcohol
A0 to shift downwards to A1. Consumption of the addictive good initially falls to ct, but
as consumption at this point is below the steady-state line consumption falls further. consumption
A new steady-state is reached at c1 and S1. Depending on the nature of the addiction,
the fall may be relatively small, but in response to a price increase heavy users reduce
consumption, and the impact in the long-term is greater than in the short-term. 125
Now, consider the figure on the right. The starting point is the same as the figure on
the left, and the initial steady-state is defined by the points c0 and S0. However, this
time the price increase is such that the entire A2 curve lies below the steady-state line.
Consumption initially falls to ct, but as consumption is below the steady-state,
consumption continues to fall until c0 ¼ 0. Under the scenario described by the
left-hand side figure the consumer has gone from a heavy user to a complete abstainer
of the good.
Regardless of the view, one has of the rational addiction model there is also strong
empirical evidence that high levels of average alcohol consumption in a country are
associated with high levels of heavy alcohol consumption (Rose and Day, 1990).
Specifically, Rose and Day (1990) use data collected from 52 population centres in
32 developed and developing countries to investigate the relationship between average
weekly alcohol consumption and the prevalence of heavy drinkers in the population.
Visual inspection of the data shows a clear, strong, linear relationship between the
population mean weekly alcohol intake and the percentage of the population that are
heavy drinkers. The reported Pearson correlation coefficient between average alcohol
intake and the prevalence of heavy drinkers in the population is 0.97, and a 15 millilitre
per week reduction in average alcohol consumption in a population is predicted to
result in a fall in the prevalence of heavy drinkers in the population of approximately
15 percent. The finding suggests higher excise taxes for alcoholic beverages will result
in lower harmful consumption. The specific channels through which excise taxes will
reduce externality costs will be varied, but will include at a minimum lower road
accident costs (Chaloupka et al., 1993) and lower direct health costs.
The own-price elasticity information tells us that increases in the price of alcoholic
beverages will result in lower average consumption. The rational addiction model says
that even heavy users of an addictive good will decrease their consumption in response
to a price increase, and the empirical evidence of Rose and Day (1990) suggests that
where there is lower average consumption there will be lower heavy consumption.
Increases in the price of alcoholic beverages will therefore be an effective policy in
lowering the externality costs of alcohol consumption. Further, as the demand for
alcoholic beverages has been shown to be price inelastic, higher excise taxes will result
in greater overall excise tax revenue. Excise tax increases therefore work to close the
gap between alcohol externality costs and excise revenue by both lowering externality
costs and increasing excise revenue.

5. Conclusion
Outside those countries with a large Muslim population alcoholic beverages are
important consumption goods. While alcoholic beverages are enjoyed in moderation by
the vast majority of consumers, a proportion of the population engages in excessive
alcohol consumption and binge drinking. As a result, alcohol consumption places
WHATT externality costs on society. Alcohol excise taxes generally, but not everywhere, fail to
1,2 recover the direct externality costs associated with harmful consumption. In countries
where externality costs are not fully recovered there is a role for further government
action. This review paper has considered the evidence regarding policies that might be
effective in closing the gap between the alcohol excise revenue and the externality costs
associated with alcohol consumption.
126 Alcohol advertising restrictions are unlikely to have a substantial impact on
consumer behaviour. Similarly, although changes in opening hours or the introduction
of so-called lock out policies may result in changes in alcohol-related incidents around
the relevant time period, when such policies are evaluated over a 24-hour period, and
the effects of policing intensity are taken into account, the impacts of such policies are
likely to be modest. Consistent with the rational addiction hypothesis, publicity and
information about the negative consequences of alcohol consumption are likely to have
an impact. For example, greater publicity of the consequences of drunk driving is
associated with a lower probability of alcohol being a factor in road fatalities. National
and regional governments can and should be proactive in publicising the potential
consequences of drunk driving.
Zero tolerance BAC laws for young drivers appear to work by lowering the
probability young men engage in binge drinking, and again are an effective policy.
More generally, policies that help the young understand the future consequences of
their actions and help them value the future appropriately are also likely to be effective.
Education and information campaigns that focus on the young are therefore to be
encouraged. The demand for alcoholic beverages is price inelastic and so increases in
excise taxes will result in both higher excise tax revenue and lower externality costs.
Higher alcohol excise taxes are therefore also an effective alcohol policy tool.

References
Barker, F. (2002), “Consumption externalities and the role of government: the case of alcohol”,
New Zealand Working Paper 02/25.
Barten, A.P. (1964), “Consumer demand functions under conditions of almost additive
preferences”, Econometrica, Vol. 32 Nos 1/2, pp. 1-38.
Becker, G.S. and Murphy, K.M. (1988), “A rational theory of addiction”, Journal of Political
Economy, Vol. 96 No. 4, pp. 675-700.
Becker, G.S. and Murphy, K.M. (1993), “A simple theory of advertising as a good or bad”,
Quarterly Journal of Economics, Vol. 108 No. 4, pp. 941-64.
Blake, D. and Nied, A. (1997), “The demand for alcohol in the United Kingdom”, Applied
Economics, Vol. 29 No. 12, pp. 1655-72.
Bouffard, L.A., Bergeron, L.E. and Bouffard, J.A. (2007), “Investigating the impact of extending
bar closing times on police stops for DUI”, Journal of Criminal Justice, Vol. 35, pp. 537-45.
Carpenter, C. (2004), “How do zero tolerance drunk driving laws work?”, Journal of Health
Economics, Vol. 23 No. 1, pp. 61-83.
Chaloupka, F.J., Saffer, H. and Grossman, M. (1993), “Alcohol-control policies and motor-vehicle
fatalities”, Journal of Legal Studies, Vol. 22 No. 1, pp. 161-86.
Clark, O. and Rand, M. (2001), Grapes and Wine, Little, Brown and Company, London.
Clements, K.W., Yang, W. and Zheng, S.W. (1997), “Is utility additive? The case of alcohol”,
Applied Economics, Vol. 29 No. 9, pp. 1163-7.
Cnossen, S. (2007), “Alcohol taxation and regulation in the European Union”, International Tax Review of
and Public Finance, Vol. 14 No. 6, pp. 699-732.
alcohol
Collins, D.J. and Lapsley, H.M. (2008), The Costs of Tobacco, Alcohol and Illicit Drug Abuse to
Australian Society in 2004/05, Commonwealth of Australia. consumption
Deaton, A. and Muelbauer, J. (1980), “An almost ideal demand system”, American Economic
Review, Vol. 70 No. 3, pp. 312-26.
Devlin, N., Schuffham, P. and Bunt, L. (1997), “The social costs of alcohol abuse in New Zealand”, 127
Addiction, Vol. 92 No. 11, pp. 1491-505.
Drummer, O.H., Gerostamoulos, J., Batziris, H., Chu, M., Caplehorn, J., Robertson, M.D. and Swan,
P. (2003), “The involvement of drugs in drivers of motor vehicles killed in Australian road
traffic crashes”, Accident Analysis and Prevention, Vol. 43, pp. 1-10.
Duffy, M. (1987), “Advertising and the inter-product distribution of demand: a Rotterdam model
approach”, European Economic Review, Vol. 31, pp. 1051-70.
Duffy, M. (1995), “Advertising in demand systems for alcoholic drinks and tobacco: a
comparative study”, Journal of Policy Modelling, Vol. 17 No. 6, pp. 557-77.
Duffy, M. (2001), “Advertising in consumer allocation models: choice of functional form”, Applied
Economics, Vol. 33 No. 4, pp. 437-56.
Duffy, M. (2002), “On the estimation of an advertising-augmented, cointegrating demand
system”, Economic Modelling, Vol. 20 No. 1, pp. 181-206.
Eisenberg, D. (2003), “Evaluating the effectiveness of policies related to drunk driving”, Journal
of Policy Analysis and Management, Vol. 22 No. 2, pp. 249-74.
Freeman, J., Palak, G. and Davey, J. (2007), “Reducing alcohol-related injury and harm: the impact
of a licensed premises lockout policy”, paper presented at the 14th International Policy
Executive Symposium, Dubai, April 8-12.
Fujita, Y. and Shibata, A. (2006), “Relationship between traffic fatalities and drunk driving in
Japan”, Traffic Injury Prevention, Vol. 7 No. 4, pp. 325-7.
Galbraith, J.K. (1967), The New Industrial State, Houghton-Mifflin, Boston, MA.
Grossman, M., Sindelar, J.L., Mullahay, J. and Anderson, R. (1995), “Response [to the economic
case against higher alcohol taxes]”, Journal of Economic Perspectives, Vol. 9 No. 1,
pp. 210-2.
Heien, D. (1995), “The economic case against higher alcohol taxes”, Journal of Economic
Perspectives, Vol. 9 No. 1, pp. 207-9.
Hingson, R., Heeren, T.M. and Winter, M. (2000), “Effects of recent 0.08% legal blood alcohol
limits on fatal crash involvement”, Injury Prevention, Vol. 6, pp. 109-14.
Kenkel, D.S. (2005), “Are alcohol tax hikes fully passed through to prices?”, American Economic
Review, Vol. 95 No. 2, pp. 273-7.
McGuinness, T. (1983), “The demand for beer, spirits and wine in the UK, 1956-79”, in Grant, M.,
Plant, M. and Williams, A. (Eds), Economics and Alcohol: Consumption and Controls,
Croom Helm, Canberra.
Nelson, J.P. (1999), “Broadcast advertising and U.S. demand for alcoholic beverages”, Southern
Economic Journal, Vol. 65 No. 4, pp. 774-90.
Nelson, J.P. (2003), “Advertising bans, monopoly, and alcohol demand: testing for substitution
effects using state panel data”, Review of Industrial Organisation, Vol. 22, pp. 1-25.
Nelson, J.P. and Moran, J.R. (1995), “Advertising and US alcoholic beverage demand:
system-wide estimates”, Applied Economics, Vol. 27 No. 12, pp. 1225-36.
WHATT Neustrom, M.W. and Norton, W.M. (1993), “The impact of drunk driving legislation in
Louisiana”, Journal of Safety Research, Vol. 24, pp. 107-21.
1,2 Norström, T. (2006), “Per capita alcohol consumption and sickness absence”, Addiction, Vol. 101,
pp. 1421-7.
Ornstein, S.I. and Hanssens, D.M. (1985), “Alcohol control laws and the consumption of distilled
spirits and beer”, Journal of Consumer Research, Vol. 12 No. 2, pp. 200-13.
128 Owen, A.D. (1979), “The demand for wine in Australia, 1955-1977”, Economic Record, Vol. 55
No. 150, pp. 230-5.
Pidd, K.J., Berry, J.G., Roche, A.M. and Harrison, J.E. (2006), “Estimating the cost of
alcohol-related absenteeism in the Australian workforce: the importance of consumption
patterns”, Medical Journal of Australia, Vol. 185 Nos 11/12, pp. 637-41.
Prest, A.R. (1949), “Some experiments in demand”, Review of Economics and Statistics, Vol. 31
No. 1, pp. 33-49.
Quinlan, K., Brewer, R., Siegel, P., Sleet, D., Mokdad, A., Shults, R. and Flower, N. (2005),
“Alcohol-impaired driving among U.S. adults, 1993-2002”, American Journal of Preventive
Medicine, Vol. 28 No. 4, pp. 346-50.
Rogers, P.N. and Schoenig, S.E. (1994), “A time series evaluation of California’s 1982
driving-under-the-influence legislative reforms”, Accident Analysis and Prevention, Vol. 26
No. 1, pp. 63-78.
Room, R., Babor, T. and Rehm, J. (2005), “Alcohol and public health”, The Lancet, Vol. 365,
pp. 519-30.
Rose, G. and Day, S (1990), “Population mean predicts the number of deviant individuals”, British
Medical Journal, Vol. 301, pp. 1031-4.
Saffer, H. and Dave, D. (2006), “Alcohol advertising and alcohol consumption by adolescents”,
Health Economics, Vol. 15 No. 6, pp. 617-37.
Selvanathan, S. and Selvanathan, E.A. (2005), Demand for Alcohol, Tobacco and Marijuana:
International Evidence, Ashgate Publishing, Aldershot.
Sen, A. (2005), “Do stricter penalties or media publicity reduce alcohol consumption by drivers?”,
Canadian Public Policy, Vol. 31 No. 4, pp. 359-80.
Skog, O.-L. (1999), “Rationality, irrationality, and addiction – notes on Becker’s and Murphy’s
theory of addiction”, in Elster, J. and Skog, O.-L. (Eds), Getting Hooked: Rationality and
Addiction, Cambridge University Press, Cambridge.
Skog, O.-L. (2001), “Alcohol consumption and mortality rates from traffic accidents, accidental
falls, and other accidents in 14 European countries”, Addiction, Vol. 96, pp. S49-S58.
Stone, R. (1945), “The analysis of market demand”, Journal of the Royal Statistical Society, Vol. 108
Nos 3/4, pp. 286-391.
Theil, H. (1965), “The information approach to demand analysis”, Econometrica, Vol. 33 No. 1,
pp. 67-87.
WHO (2004), Global Status Report on Alcohol, World Health Organisation, Geneva.
Zwerling, C. and Jones, M. (1999), “Evaluation of the effectiveness of low blood alcohol
concentration laws for younger drivers”, American Journal of Preventive Medicine, Vol. 16
No. 1, pp. 76-80.

Further reading
Adrian, M. and Ferguson, B.S. (1987), “Demand for domestic and imported alcohol in Canada”,
Applied Economics, Vol. 16 No. 4, pp. 531-40.
Alley, A.G., Ferguson, D.G. and Steward, K.G. (1992), “An almost ideal demand system for Review of
alcoholic beverages in British Columbia”, Empirical Economics, Vol. 17 No. 3, pp. 401-18.
alcohol
Andrikopoulos, A.A. and Loizides, J. (2000), “The demand for home-produced and imported
alcoholic beverages in Cyprus: the AIDS approach”, Applied Economics, Vol. 32 No. 9, consumption
pp. 1111-9.
Andrikopoulos, A.A., Brox, J.A. and Carvalho, E. (1997), “The demand for domestic and imported
alcoholic beverages in Ontario, Canada: a dynamic simultaneous equation approach”, 129
Applied Economics, Vol. 29 No. 7-953.
Auld, C.M. (2005), “Smoking, drinking, and income”, Journal of Human Resources, Vol. 20 No. 2,
pp. 505-18.
Baker, P. and Mckay, S. (1990), Structure of Alcohol Taxes: A Hangover from the Past?, The
Institute for Fiscal Studies, London.
Baltagi, B.H. and Griffin, J.M. (1995), “A dynamic demand model for liquor: the case for pooling”,
The Review of Economics and Statistics, Vol. 77 No. 3, pp. 545-54.
Baltagi, B.H. and Griffin, J.M. (2002), “Rational addiction to alcohol: panel data analysis of liquor
consumption”, Health Economics, Vol. 11 No. 6, pp. 485-91.
Becker, G.S., Grossman, M. and Murphy, K.M. (1991), “Rational addiction and the effect of price
on consumption”, Journal of Political Economy, Vol. 96 No. 4, pp. 675-700.
Bentzen, J., Eriksson, T. and Smith, V. (1999), “Rational addiction and alcohol consumption:
evidence form the Nordic countries”, Journal of Consumer Policy, Vol. 22 No. 3, pp. 257-79.
Bentzen, J., Smith, V. and Nannerup, N. (1997), “Alcohol consumption and drunken driving in the
Scandinavian countries”, Discussion Paper No. 97-1, Department of Economics, The
University of Aarhus, Aarhus.
Berger, M.C. and Leigh, J.P. (1988), “Effect of alcohol use on wages”, Applied Economics, Vol. 20,
pp. 1343-51.
Clements, K.W. and Johnson, L.W. (1983), “The demand for beer, wine, and spirits: a systemwide
analysis”, Journal of Business, Vol. 56 No. 3, pp. 273-304.
Clements, K.W. and Selvanathan, E.A. (1987), “Alcohol consumption”, in Theil, H. and Clements,
K.W. (Eds), Applied Demand Analysis: Results from System-wide Approaches, Ballinger,
Cambridge, MA.
Clements, K.W. and Selvanathan, E.A. (1988), “The Rotterdam model and its application to
marketing”, Marketing Science, Vol. 7 No. 1, pp. 60-75.
Clements, K.W. and Selvanathan, S. (1991), “The economic determinants of alcohol
consumption”, Australian Journal of Agricultural Economics, Vol. 35 No. 2, pp. 209-31.
Cook, P.J. and Moore, M.J. (2000), “Alcohol”, in Culyer, A.J. and Newhouse, J.P. (Eds), Handbook of
Health Economics, Vol. 1, Elsevier, Amsterdam, pp. 1631-73.
Cook, P.J. and Tauchen, G. (1982), “The effect of liquor taxes on heavy drinking”, Bell Journal of
Economics, Vol. 13 No. 2, pp. 379-90.
Coulson, N.E., Moran, J.R. and Nelson, J.P. (2001), “Long-run demand for alcoholic beverages and
the advertising debate: a cointergration analysis”, in Bayes, M.R. and Nelson, J.P. (Eds),
Advertising and Differentiated Products, Vol. 10, Elsevier, Amsterdam, pp. 31-54.
DSICA (2006), Alcohol Tax in Australia 2006, Distilled Spirits Industry Council of Australia,
Melbourne.
Duffy, M. (1983), “The demand for alcoholic drink in the United Kingdom, 1963-78”, Applied
Economics, Vol. 15 No. 1, pp. 125-40.
WHATT Fogarty, J.J. (2006), “The nature of the demand for alcohol: understanding elasticity”, British
Food Journal, Vol. 108 No. 4, pp. 316-32.
1,2
Gallet, C.A. and List, J.L. (1998), “Elasticity of beer demand revisited”, Economics Letters, Vol. 61
No. 1, pp. 67-71.
Gao, X.M., Wailes, E.J. and Cramer, G.L. (1995), “A microeconometric model analysis of US
consumer demand for alcoholic beverages”, Applied Economics, Vol. 1, pp. 59-69.
130 Godfrey, C. (1988), “Licensing and the demand for alcohol”, Applied Economics, Vol. 20 No. 11,
pp. 1541-58.
Gruenewald, P.J., Ponicki, W.R., Holder, H.D. and Romelsjö, A. (2006), “Alcohol prices, beverage
quality, and the demand for alcohol: quality substitutions and price elasticities”,
Alcoholism: Clinical and Experimental Research, Vol. 30 No. 1, pp. 96-105.
Hamilton, V. and Hamilton, B.H. (1997), “Alcohol and earnings: does drinking yield a wage
premium?”, Canadian Journal of Economics, Vol. 30 No. 1, pp. 135-51.
Hausman, J., Leonard, G. and Zona, J.D. (1994), “Competitive analysis with differenciated
products”, Annales d’Economie et de Statistique, No. 43, pp. 159-80.
Hogarty, T.F. and Elzinga, K.G. (1972), “Demand for beer”, Review of Economics and Statistics,
Vol. 54 No. 2, pp. 195-8.
Holm, P. (1995), “Alcohol content and demand for alcoholic beverages: a system approach”,
Empirical Economics, Vol. 20 No. 1, pp. 75-92.
Holm, P. and Suoniemi, I. (1992), “Empirical application of optimal commodity tax theory to
taxation of alcoholic beverages”, Scandinavian Journal of Economics, Vol. 94 No. 1,
pp. 85-101.
Huang, C.-D. (2003), “Econometric models of alcohol demand in the United Kingdom”,
Government Economic Service Working Paper No. 140, p. 140.
Johnson, J.A. and Oksanen, E.H. (1974), “Socio-economic determinants of the consumption of
alcoholic beverages”, Applied Economics, Vol. 6, pp. 293-301.
Johnson, J.A. and Oksanen, E.H. (1977), “Estimation of demand for alcoholic beverages in Canada
from pooled time series and cross sections”, Review of Economics and Statistics, Vol. 59
No. 1, pp. 113-8.
Johnson, J.A., Oksanen, E.H., Veall, M.R. and Fretz, D. (1992), “Short-run and long-run elasticities
for Canadian consumption of alcoholic beverages: an error-correction
mechanism/cointegration”, Approach Review of Economics and Statistics, Vol. 74 No. 1,
pp. 64-74.
Jones, A.M. (1989), “A systems approach to the demand for alcohol and tobacco”, Bulletin of
Economic Research, Vol. 41 No. 2, pp. 3307-78.
Kidd, J.P., Berry, J.G., Roche, A.M. and Harrison, E.J. (2006), “Estimating the cost of alcohol
related absenteeism in the Australian workforce: the importance of consumption patterns”,
Medical Journal of Australia, Vol. 185 Nos 11/12, pp. 637-41.
Labys, W.C. (1976), “An international comparisons of price and income elasticities for wine
consumption”, Australian Journal of Agricultural Economics, Vol. 20 No. 1, pp. 33-6.
Larivière, E., Larue, B. and Chalfant, J. (2000), “Modelling the demand for alcoholic beverages and
advertising specifications”, Agricultural Economics, Vol. 22, pp. 147-62.
Lau, H.-H. (1975), “Cost of alcoholic beverages as a determinant of alcohol consumption”, in
Gibbins, R.J., Israel, Y. and Kalant, H. (Eds), Research Advances in Alcohol and Drug
Problems, Vol. 2, Wiley, New York, NY, pp. 211-45.
Lee, B. and Tremblay, V.J. (1992), “Advertising and the U.S. market demand for beer”, Applied Review of
Economics, Vol. 24 No. 1, pp. 69-76.
alcohol
Levi, A.E. and Fowler, R.J. (1995), “US demand for imported wine”, Journal of International Food
and Agribusiness Marketing, Vol. 7 No. 1, pp. 79-91. consumption
Miller, G.L. and Roberts, I.M. (1972), “The effect of price change on wine sales in Australia”,
Quarterly Review of Agricultural Economics, Vol. 25 No. 1, pp. 231-9.
Nelson, J.P. (1990), “State monopolies and alcoholic beverage consumption”, Journal of 131
Regulatory Economics, Vol. 2 No. 1, pp. 83-98.
Nelson, J.P. (1997), “Economic and demographic factors in US alcohol demand: a
growth-accounting analysis”, Empirical Economics, Vol. 22 No. 1, pp. 83-102.
Niskanen, W.A. (1962), “Demand for alcoholic beverages”, PhD thesis, Department of Economics,
University of Chicago, Chicago, IL.
Norström, T. (2005), “The price elasticity for alcohol in Sweden 1984-2003”, Nordisk Alkohol –
and Narkotikatidskrift, Vol. 22, pp. 87-101, English Supplement.
Pearce, D. (1986), “The demand for alcohol in New Zealand”, Discussion Paper No. 86.02,
Department of Economics, The University of Western Australia, West Perth.
Penm, J.P. (1988), “An econometric study of the demand for bottled, canned and bulk beer”,
Economic Record, Vol. 64 No. 187, pp. 268-74.
Quek, K.E. (1988), “The demand for alcohol in Canada: an econometric study”, Discussion Paper
No. 88.08, Department of Economics, The University of Western Australia, West Perth.
Ramsey, F.P. (1927), “A contribution to the theory of taxation”, The Economic Journal, Vol. 37
No. 135, pp. 47-61.
Ruhm, C.J. (1996), “Alcohol policies and highway vehicle fatalities”, Journal of Health Economics,
Vol. 15 No. 1, pp. 435-545.
Sabuhoro, J.B., Larue, B. and Lariviere, E. (1996), “Advertising expenditures and the
consumption of alcoholic beverages”, Journal of International Food and Agribusiness
Marketing, Vol. 8 No. 3, pp. 37-55.
Salisu, M.A. and Balasubramanyam, V.N. (1997), “Income and price elasticities of demand for
alcoholic drinks”, Applied Economics Letters, Vol. 4 No. 4, pp. 247-51.
Selvanathan, E.A. (1988), “Alcohol consumption in the UK, 1955-85: a system wide analysis”,
Applied Economics, Vol. 20 No. 8, pp. 1071-86.
Selvanathan, E.A. (1991), “Cross-country alcohol consumption comparison: an application of the
Rotterdam demand system”, Applied Economics, Vol. 23 No. 10, pp. 1613-22.
Selvanathan, E.A. and Clements, K.W. (1995), “Recent developments in applied demand analysis:
alcohol”, Advertising and Global Consumption, Springer, Berlin.
Selvanathan, E.A. and Selvanathan, S. (2007), “Another look at the identical tastes hypothesis on
the analysis of cross-country alcohol data”, Empirical Economics, Vol. 32 No. 1, pp. 185-215.
Selvanathan, S. and Selvanathan, E.A. (2004), “Economic and demographic factors in Australian
alcohol demand”, Applied Economics, Vol. 36 No. 21, pp. 2405-17.
Skog, O.-L. and Melberg, O. (2006), “Becker’s rational addiction theory: an empirical test with
price elasticities for distilled spirits in Denmark 1911-31”, Addiction, Vol. 101, pp. 1444-50.
Stigler, G.J. and Becker, G.S. (1977), “De Gustibus Non Est Disputandum”, The American
Economic Review, Vol. 67 No. 2, pp. 76-90.
Stone, R. (1951), Role of Measurement in Economics, Cambridge University Press, Cambridge.
WHATT Stone, R. (1958), “Dynamic demand functions: some econometric results”, Economic Journal,
Vol. 68 No. 270, pp. 256-70.
1,2 Taplin, J. and Ryan, W. (1969), “The prospects for wine in Australia”, Quarterly Review of
Agricultural Economics, Vol. 22 No. 1, pp. 197-202.
Tegene, A. (1990), “The Kalman filter approach for testing structural change in the demand for
alcoholic beverages in the U.S”, Applied Economics, Vol. 22 No. 10, pp. 1407-16.
132 Train, K. (1985), “Discount rates in consumers’ energy-related decisions: a review of the
literature”, Energy, Vol. 10 No. 12, pp. 1243-53.
Trolldal, B. and Ponicki, W. (2005), “Alcohol price elasticities in control and license states”,
Addiction, Vol. 100, pp. 1158-65.
Walsh, B.M. (1982), “The demand for alcohol in the UK: a comment”, Journal of Industrial
Economics, Vol. 30 No. 4, pp. 439-46.
Wang, J., Gao, X.M., Wailes, E.J. and Cramer, G.L. (1996), “Consumer demand for alcoholic
beverages: cross-section estimation of demographic and economic effects”, Review of
Agricultural Economics, Vol. 18 No. 3, pp. 477-89.
Wong, A.T.-T. (1988), “The demand for alcohol in the UK 1920-1938: an econometric study”,
Discussion Paper No. 88, Department of Economics, The University of Western Australia,
West Perth.

Corresponding author
James J. Fogarty can be contacted at: j.fogarty@aciltasman.com.au

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.