Smoking, Drinking, and Binge Drinking: An Empirical Study of the Role of Price on Consumption by High School Seniors

In this study, I estimate time-series demand functions using Ordinary Least Squares in order to examine the effects of real cigarette and alcohol prices on their respective consumption. My targeted population is high school seniors in the United States. The data I use come from Monitoring the Future, The Tax Burden on Tobacco, and the Bureau of Labor Statistics. Using the Ordinary Least Squares real price coefficients, I evaluate how much of the observed change in consumption is explained by the observed change in real price during a particular period of time between 1976 and 2008. Then, I repeat the same calculations for subsamples of male, female, white, and nonwhite high school seniors. Moreover, I incorporate a risk variable measuring whether or not subjects believe there is a great risk of harm when consuming cigarettes or alcohol in moderate or excessive quantities. Among high school seniors, my findings reveal that 73 percent of the observed decrease in cigarette consumption during 1997-2008, 28 percent of the observed decrease in alcohol consumption during 1989-1992, and 70 percent of the observed decrease in excessive alcohol consumption also during 1989-1992 are explained by increments in their respective real prices. The percentage of change in cigarette, alcohol, and excessive alcohol consumption explained by changes in their respective real prices remain substantial even after controlling for risk perceptions associated with these activities. Furthermore, greater awareness of the risks associated with smoking, drinking, and binge drinking strengthen the effect of real price on consumption