Sunday, 6 November 2016

Availability theory and inventories

It never made sense to me that restricting bottle shop hours would have any particular effect on alcohol consumption. It's an empirical question obviously, but surely people hold inventories against periods of lack of supply. The only time I was caught out was when I didn't know that Virginia ended bottle sales at 10pm when I was a grad student and we ran out of beer. It didn't happen a second time.

Otherwise, who could be affected by the closing times? Suppose that you're trying to restrict your own consumption by keeping lower stocks in the house. At any point you could be tempted to go out and buy a lot more than some other version of you would like you to consume. The store being closed at particularly tempting times could have an effect. Like, if the 3am drunk version of you would really like to buy more alcohol, but the 7pm earlier sober version of you wanted to prevent that, you could effect that strategy by having limited supplies in the house and knowing that the shop wouldn't sell any to 3am drunk-you. Alternatively, you could just hide the credit card.

Bernheim et al take it up in the latest AEJ: Policy. They look at the effect of American blue laws: some states bar alcohol sales on Sunday,* and think about them in the context of commitment devices.

Commitment devices in general are things you can use to preclude future courses of action - like the story I gave of the 7pm-you above. My favourite work is still Jon Elster's Ulysses Unbound, where he goes through all the ways we bind our future selves. The availability and simplicity of these mechanisms has made me deeply sceptical of irrationality-based reasons for paternalistic regulation. Bernheim et al note one of these:
Some evidence from clinical practice actually casts a degree of doubt on the hypothesis that addicts value commitment opportunities. For example, alcoholics can commit to sobriety by taking disulfiram, a drug that produces an unpleasant reaction to alcohol. However, only supervised disulfiram administration is generally recognized as effective; compliance is poor among patients who are given the drug to take on their own (see, e.g., Hughes and Cook 1997, and Anton 2001). Of course, an alcoholic who uses disulfiram runs the risk that he will give in to cravings and experience an extremely unpleasant reaction. Poor compliance may be attributable to this risk rather than to the absence of a demand for commitment more generally.
If you take disulfiram, it seems unlikely you'd give in to cravings more than once; you instead stop taking it so that you can give in to cravings. But that too doesn't point to irrationality: if I choose today to stop taking disulfiram so that I can tomorrow get drunk without being immediately violently ill, that suggests forward-looking behaviour entirely at odds with the typical irrationality stories of people impulsively giving into stuff despite their better selves.

That isn't the main point of the article. Instead they're looking at whether bans on Sunday liquor sales have any effect on consumption. You'd predict:

  • rational, forward-looking people plan ahead and keep enough inventory on hand: their consumption is unaffected;
  • sophisticated time-inconsistent forward-looking people plan ahead by not keeping inventory on hand and are helped in that by Sunday closing laws: their consumption drops;
  • unsophisticated time-inconsistent people keep inventories either way, expecting that they'll be able to control their drinking, and being continually disappointed: their consumption drops only if they've procrastinated about shopping.
They find:
Our central finding is that liquor consumption increases along with allowable on-premise Sunday sales hours, but there is no evidence that it is affected by off-premise Sunday sales hours. These findings are robust with respect to a wide variety of specifications, including ones that control for preexisting trends and concurrent changes in related restrictions. Thus, to our considerable surprise, we find no indication that the availability strategy plays a meaningful role in aggregate liquor consumption. Instead, the observed pattern coincides with our prediction for time-consistent consumers who have good memories and low costs of carrying inventories, as well as for naïve time-inconsistent consumers who, in addition, do not regularly find themselves without inventories due to unintentional procrastination of shopping. Naturally, the possibility remains that liquor purchasers are time-inconsistent and sophisticated, but that they favor some other technique for exercising self-control. For instance, Bernheim, Ray, and Yeltekin (2015) demonstrate that a sophisticated time-inconsistent consumer may avoid external commitments because they undermine internal self-control strategies. [emphasis added]
Not a big surprise that consumption on-premise goes up when Sunday sales are allowed - a summer Sunday afternoon at out at an outdoor pub is lovely, and it's not like you can keep "Sunday at pub" in the back cupboard to save for Sundays when Sunday opening is banned. But you can stock up on alcohol, and people do. So the only effect of closing the bottle shops is inconveniencing customers who'd prefer to do their shopping on Sundays.

Bruce Yandle explains why these policies exist in other work.

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