Keng, Shao-Hsun; Huffman, Wallace E.

Journal of Population Economics Vol. 20 (February 2007): 35-54. (Originally published as WP #05014, April 2005)

This paper presents a two equation model of joint outcomes on an individualﾒs decision to binge drink and on his/her annual labor market earnings. The primary data source is the 1979 cohort of the National Longitudinal Survey of Youth (NLSY79), 19791994. We show that binge drinking behavior is quite alcoholprice responsive and is a rational addiction. A new result is that an individualﾒs decision to binge drink has a statistically significant negative effect on his/her earnings. Furthermore, we conducted simulations of the shortrun and longrun impacts of increasing the alcohol price. They showed that that the tendency for an individual to binge drink heavily is reduced significantly, and the reduction is greater in the long than shortrun simulation. Also, an individualﾒs annual earnings were increased. However, in the structural model, an individualﾒs earnings have no significant effect on his/her tendency to engage in binge drinking. Our results contradict earlier findings from crosssection evidence that showed increased alcohol consumption raised an individualﾒs earnings or wages.

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