Crampton on minimum prices

Eric Crampton blogs:

Last week, anti-alcohol advocacy group Alcohol 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 minimum pricing

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.