Do Consumers Exploit Precommitment Opportunities? Evidence from Natural Experiments Involving Liquor Consumption
Authors: B.Douglas Bernheim, Jonathan Meer, Neva K. Novarro
Published by: NBER Working Paper Series, Working Paper No. 17762
Student: Congying Hu
Master Candidate in Economics
Department of Economics
I. Summary of the Paper
The authors are doing research on the relationship upon the concepts of time inconsistency, time consistency and a demand for precommitment technology. By definition, it is saying that time inconsistency is about a decision maker’s preference, at one point in time, is inconsistent with a preference at another point in time. From the standpoint of the authors, a growing number of consumers should sufficiently self-aware to notice their time-inconsistent tendencies will verify an upward demand for precommitment technologies. To approve this, the authors try to achieve evidence with reference to the extent to which consumers of addictive substance exhibit a demand for precommitment devices. The method used specifically in this paper, referred as the availability strategy, is to limit the availablility of a problematic good by not maintaining an easily accessed supply. Precisely, the authors examine the impact on liquor consumption of a collection of natural experiments on state-level policy changes that altered liquor sales hours on Sundays either for on-premise (in restaurants and bars) or off-premise (through liquor and package stores) consumption, i.e. “blue laws”, with the hypothesis that the implementation of blue laws should play a significant role in lowering aggregate liquor consumption. However, the authors find no meaningful demonstration that the precommitment devices contribute a lot to decreasing aggregate liquor consumption. The authors adopt the econometric method of estimating panel regressions with state fixed effects and year effects using a set of data collected from 1970 through 2007 so as to get access to compare the changes over time in liquor purchases for states that intensified regulations to the changes for states that did not. Accordingly, with all experimental results, the authors conclude that consumers make response to on-premise and off-premise distinguishingly. Consumers construct a preference to increasing their liquor consumption in expanding Sunday on-premise sales hours as opposed to constructing a similar liquor purchases pattern regarding shorted Sunday off-premised sales hours. In addition the authors also have significant findings with respect to tax policy and public health which indicate that states with laxer blue laws are likely to raise tax revenue but may also extend alcohol-related social costs.
The main strength of this paper is the subject selected, precommitment device, which has been playing an increasingly important role in strongly connecting with self-control. Precommitment is defined as a strategy that a party to a conflict can enhance its position by cutting off some options to make its threats more credible. Accordingly, the theoretical background of this paper is strong and clear. The authors could derive internal logic hypothesis from it. In this paper, the authors effectively frame an analogy structure, setting state-policy changes on Sunday liquor sales hours as a precommitment device to make the threat of downward consumption of liquor for alcoholics more credible. If the model used in the paper progressively obtained designed results, liquor consumption would be lower. Consequently, precommitment could be widely used in a variety of issues concerning self-control over addictive substances such as cigarettes, drugs and gambling. However, this paper fails to make a significant indication certificating the authors’ hypothesis. As is mentioned by the authors, a collection of other authors, such as...