How much should we pay for a drink?

In my Herald column I write about Labour’s proposed minimum pricing for alcohol.

Labour seem very reluctant to confirm what minimum price they are actually advocating. Lianne Dalziel twice stated in Parliament it should be at least $2 a standard drink. Her colleagues seem to want to ignore that, as seen below.

You can’t have it both ways and have your MPs get up in Parliament and say the law should be this, and then deny that is your policy – especially when the MP is your spokesperson on alcohol issues.

A reader sent me this graphic, which sums it up.

More usefully, Eric Crampton has an excellent analysis of minimum pricing. He states:

What would the world have to look like for minimum alcohol pricing to be a reasonable policy solution?

Suppose it is the case that harmful heavy drinkers, the sort that impose the greatest harms on others when they consume alcohol, really don’t care about the quality of the alcohol they’re drinking; they’re buying whatever product provides alcohol at the lowest price per standard drink. Suppose further that this cohort’s consumption is reasonably responsive to price measures: if you raise the price of the cheapest form of alcohol, you’ll do a lot to curb that cohort’s consumption while not doing much to reduce the normal consumption of moderate drinkers. Finally, assume that there’s little overlap between the kinds of alcohol consumed by harmful drinkers and that consumed by moderate low-income drinkers.

So minimum pricing is a good idea Eric says, if the above holds true.

where both heavy drinkers and moderate drinkers are choosing the same kinds of products, albeit in different quantities, we have to worry a lot about how each kind of consumer responds to changes in prices. The best meta-study on the topic remains Wagenaar, who found that heavy drinkers are roughly 60% as price responsive as moderate drinkers: the price elasticity of demand among heavy drinkers is -0.28 while it’s -0.44 for average drinkers. If we doubled the price of lower cost products, which we’d have to do to get to Labour’s preferred $2 minimum price per standard drink, moderate drinkers who currently choose that class of product would cut back their consumption by about 44% while heavy drinkers would reduce their consumption by only about 28%.

Intuitively you would expect heavy drinkers to be less price sensitive.