Alcohol consumption, censorship and misjudgement

JournalApplied Economics
AuthorsKenneth Clements, Haiyan Liu, Yashar Tarverdi
PublishedJune 2018
PublisherTaylor and Francis Online

In the study of the economic determinants of alcohol consumption, there is an under-appreciated issue of sample selectivity as consumption is often not fully observed. Sample selectivity involves ignoring consumption below a censorship cut-off level. This article estimates a demand system for beer, wine and spirits with and without allowance for selectivity. Then using a simulation approach, it examines the impact of misjudgement in the censorship level on the estimated demand parameters. A mean squared error (MSE) criterion is suggested for determining the appropriate censorship level.