Crampton on minimum prices

July 11th, 2012 at 7:57 am by David Farrar

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Last week, anti- advocacy group Action NZ put out a press release where the University of Otago’s Jennie Connor was quoted:

“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”.

Eric did something very unusual then.

I got in touch with one of the authors of what has to be the study to which she’s referring

Chris Auld reported that the -1.6 price elasticity figure indeed only refers to a measure of own-price elasticity. Except it isn’t quite own-price elasticity. Because the estimation technique doesn’t correct for substitution effects, it combines the own-price elasticity with cross-price elasticity from other products. 

Eric then starts quoting formulas which will turn off neurones in most people, but they are there if you want to read them.

Chris also confirms that the -0.34 estimate is the one that best reflects the expected effects of an across-the-board price increase like

That means a 10% increase in prices would reduce consumption by 3.4%. Eric concludes:

Jennie Connor really should retract her press release or issue a correction. It leads people to believe that a minimum price will have far more effect on harmful drinkers’ consumption than can be supported by the evidence. Otherwise, how much weight should anybody place on any “fact” claimed by Jennie Connor in her press releases?

But to show he is balanced (and Eric is one of those guys who is all about the facts), he sides with Ross Bell of the Drug Foundation over John Key re the impact of minimum pricing on the quality of drink. But he also corrects Ross on a couple of things also. A post well worth reading.

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5 Responses to “Crampton on minimum prices”

  1. Komata (1,191 comments) says:

    All of which is OK, but the sad reality is that as long as New Zealand governments of any colour or political persuasion can make money (and lots of it) out of alcohol in the form of taxation, nothing will change, a fact not helped by the well-documented prediliction that several well-known politicians have towards excessive-alcohol consumption. This is of course nothing new in such circles. If things don’t change at the top of the tree, there is little hope for change further down – unless of course it is politically expedient to do so (as ‘Dick Seddon proved in the 1890’s). The reduction of alcohol consumption is a great idea, but sadly, the political reality is somewhat different.

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  2. PaulL (5,981 comments) says:

    Komata, we should be careful with our language. The reduction in excessive alcohol consumption is desirable. Reduction in overall alcohol consumption not necessarily so. Someone who is drinking 1-2 glasses of wine a day is not causing any harm, and arguably is improving their health outcomes, as well as almost certainly improving their happiness (else why are they drinking it). The problem is the people who drink 4+ glasses in a day, and the challenge is how to discourage them without impacting on those who are doing no harm at all.

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  3. barry (1,317 comments) says:

    Looks like the climate studies disorder is spreading to other areas of academia. Its seems that academics have decided that politicisation of their particular barrow is the way forward – and it all started with the completely dishonest so-called study of the triple vaccine – for which the perpetrator I think has gone to prison for such a dishonest report (which was financed by some special interest group).
    Climate alarmists have followed the same pathway and now it’s the anti-alcohol have gone the same way

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  4. Crampton (215 comments) says:

    @PaulL: You can make a case for a combination of minimum pricing and LOWER excise so long as you can be pretty sure that the cohort of people buying the cheapest product is harmful drinkers rather than just poor drinkers. We do not have that kind of evidence as yet. Folks will point to things like “Harmful drinkers spend $0.xx per standard drink while moderate drinkers spend $2.xx”, but that hardly makes the case; to be sure you’re not hurting low income moderate drinkers, you need to know their spending patterns compared to harmful drinkers’ spending patterns, not harmful drinkers versus everybody else.

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  5. PaulL (5,981 comments) says:

    Agree Eric. I think the point is that some problem drinkers drink expensive alcohol (minimum price doesn’t impact them), some non-problem drinkers drink cheap alcohol as you say because they’re poor.

    My general view is that if you want to address a problem, you should address that problem directly, not some proxy for the problem. If we’re concerned about excessive drinking, what are the options to target that directly. Perhaps health or education measures? Perhaps some limits on where and when people drink, some limits on how many drinks people can have on premises? In other words, directly target drunk people, not generically making alcohol more expensive in the hopes of getting at the 3% who problem drink.

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