Synthesizing Econometric Evidence: The Case of Demand Elasticity Estimates

NBER Working Paper No. 20906

Issued in January 2015

NBER Program(s):Health Economics



Econometric estimates of the responsiveness of health-related consumer demand to higher prices are often key ingredients for policy analysis. Drawing on several examples, especially that of cigarette demand, we review the potential advantages and challenges of synthesizing econometric evidence on the price-responsiveness of consumer demand. We argue that the overarching goal of research synthesis in this context is to provide policy-relevant evidence for broad brush conclusions and propose three main criteria to select among research synthesis methods. We also contribute a new empirical exercise that puts the results of previous research synthesis to the test. In particular, we ask whether the “best” consensus estimates of the price-elasticity of smoking help predict trends in smoking from 1995 to 2010. The demographics of the smoking population in our baseline year predict a downward trend in smoking even if cigarette prices remained constant. Average cigarette prices, however, more than doubled in real terms by 2010. We find that the observed declines in smoking over this period are considerably smaller than smoking demographics combined with prior consensus elasticity estimates would predict. Our results suggest that these consensus estimates may have systematically overestimated the price responsiveness of cigarette demand.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20906

Published: Philip DeCicca & Don Kenkel, 2015. "Synthesizing Econometric Evidence: The Case of Demand Elasticity Estimates," Risk Analysis, vol 35(6), pages 1073-1085. citation courtesy of

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